Waves V was bought by Launceston's Queen Victoria Museum and Art Gallery (QVMAG) in 1976.

It entered the gallery's collection soon afterwards but there was no further record of the piece and it was never displayed.

The search was sparked three years ago after researchers inquired about the piece.

It was found in a drawer by museum staff earlier this week as part of large-scale audit.

"The work wasn't photographed, so we didn't know what we were looking for," QVMAG general manager of creative arts and cultural services, Tracy Puklowski, told reporters on Friday.

"(It was) a very interesting challenge when you're dealing with a missing object.

"We knew that it was going to be monotone. We'd certainly been shown images that people thought were it, that were not at all like it.

"It was a surprise to find how it looked."

The artwork, which bears one of Whiteley's seals in the bottom corner, has been independently verified.

Launceston Mayor Albert van Zetten said it was probably wrongly categorised initially.

"I can understand how we didn't find it in the first place," he said.

"It's fantastic to know we have had it all the time. There were a lot of stories going around that somebody might have taken it."

The gallery is embarking on a full digital audit of 1.5 million artworks and objects accumulated since the institution's inception in 1891.

A convict vest in superb condition, an early 20th century abacus and Margaret Stones' Botanical Illustrations which inspired Launceston's Electric Botany street art are among new finds.

Waves V will be placed on display at QVMAG at the end of March.

Mr Whiteley, who died in 1992, won the Archibald Prize in 1976 for a studio self portrait, and again two years later.

Australian Associated Press