Pvt George Fly lent the instrument to five-year-old Edna a year after surviving the Battle of Jutland.
After keeping it in the family, Edna's daughter Marian Le May has now handed it back to the Royal Marines School of Music in Portsmouth.
The school said it would be "proudly displayed" in its percussion suites
Mr Fly joined the Royal Marines Light Infantry Divisional Band in Portsmouth in 1894. In 1915 he was drafted to the light cruiser HMS Castor which took part in the Battle of Jutland.
He died in 1934 aged 58.
His family believe he gave Edna the tambourine to use while dancing round the maypole at St Vincent's Royal Marines School at Gosport where she was a pupil.
Mrs Le May, 74, said it had become "part of our family history".
"It was never hidden away or forgotten about. But my grandchildren don't want it - they have plenty of other things to play with - so we spoke to the Royal Marines Band Service and they were pleased to have it," she said.
James Pinney, marketing manager at the school, said: "It will be proudly displayed in a prominent position where trainee musicians can see it and read about one of their brave predecessors."
A tambourine borrowed by a Royal Marines bandsman for his daughter's May Day celebrations in 1917 has been returned 99 years later.