The £126m scheme will be open to charities and businesses across England that offer tailored support to teenagers out of work or education, with no good GCSEs who are at risk of long-term disengagement.
The organisations will be offered money on a payment-by-results basis and will be eligible for up to £2,200 for every young person they help.
Announcing the funding, Deputy Prime Minister Nick Clegg said: "Sitting at home with nothing to do when you're so young can knock the stuffing out of you for years.
"This problem isn't new, but in the current economic climate we urgently need to step up efforts to ensure some of our most troubled teenagers have the skills, confidence and opportunities to succeed.
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