First mentioned in Chancellor Gordon Brown's November 2002 pre-Budget report, the Young Volunteer Challenge will enable participants to get a lump sum of 750 after successfully completing nine months of volunteering.
They may also qualify for housing, council tax and health benefits.
The scheme will begin next month, with 10 pilots throughout England to benefit 1,200 18 to 21-year-olds. The volunteers must commit at least 30 hours a week to the initiative, which is being delivered by the Department for Education and Skills.
The Government has set a target of increasing community participation by five per cent by 2006, raising the number of volunteers by 900,000.
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