John Horrocks built Penwortham Hall in 1801 and was a leading figure in industry and politics who lived in the area 250 years ago and is buried at St. Mary's Church.
The road will be named in his honour after it was selected from a host of suggestions made by primary and secondary schools in Penwortham.
The winning entry - submitted by Penwortham Girls' High School pupils Grace Shields and Laura Gillett, both aged 13 - was announced at a meeting of South Ribble Borough Council's cabinet.
Council leader Paul Foster said it was a "no-brainer" that the route should be named after somebody so connected with the town.
"It’s a lovely legacy that every time you drive up and down John Horrocks Way it will be down to you two," Cllr Foster said to the pupils as they unveiled the name to applause.
Speaking after the meeting, Laura said she had wanted the name to have a historical connection because "the road runs through Penworthan and a lot of people will be using it".
Grace added: "He invented Penwortham in a way and so we just thought it would be a nice reminder of that."
Horrocks was at the forefront of Lancashire's textiles revolution in the late eighteenth century and his company owned several mills which employed thousands of people. He also represented Preston as the city's MP between 1802 and his death at the age of just 36 in 1804.
Work on the £17.5m bypass began with a sod-turning ceremony on a rain-sodden day in January 2018 and is now nearing completion. The route, which will connect the A59 Liverpool Road at Howick Cross to the A582 Broad Oak Roundabout, is expected to open early next year.
Highways bosses hope that the 1.3km road will take 22,000 vehicle trips per day out of Penwortham town centre, which will then be redesigned with a revised road layout and new street furniture.
County Cllr Keith Iddon, Lancashire County Council's cabinet member for highways and transport, said earlier this year that the town will become "a more pleasant place to be".
In a statement on the name for the new road, he added: "Lancashire is well-known around the world for its cotton mills, so it's fitting that John Horrocks who lived in Penwortham will be remembered with our new road.
"We were keen to get local people involved, so we asked schools to come up with interesting names for the new road especially with a local connection. We're really pleased with this suggestion."
Cllr Foster added “I am delighted that, after two decades of talks and planning, we are seeing the Penwortham Bypass come to fruition – a vital bit of infrastructure allowing for better opportunities in Penwortham and alleviated congestion in the area.
“We hope that residents are pleased with the new road and the opportunities it brings.”