The Positive Families Partnership has been jointly commissioned by Sutton, Tower Hamlets, Bexley, Merton and Newham councils and is designed to support 350 young people involved in antisocial behaviour or substance abuse who are at risk of being taken into care.
As part of the initiative, young people will be offered access to therapy aimed at addressing their behavioural issues as well as improving their family life.
The £4.5m social impact bond is funded by Bridges Fund Management. The three organisations involved in delivering the support, Family Psychology Mutual, Family Action and the South West London & St George's Mental Health Trust, will only be paid if they succeed in achieving targets, which include keeping young people out of care.
If successful the partnership aims to expand into other London boroughs.
Lisa Barclay, chief operating officer at Social Finance UK, which is offering management support to the partnership, added: "There are 10,000 children in care in London. With support, many of these young people could stay safely with their families at home.
"By bringing London boroughs together to access different therapies and programmes, we will be able to transform the lives of hundreds of children and their families across the city."
Ruth Dombey, leader of Sutton Council, which is managing the partnership, said: "Finding better solutions for these young people has become one of our biggest challenges."
"We're really proud that we have been able to join forces with our colleagues in such an innovative project. We believe it has real potential to show that when commissioning children's services, innovation and collaboration can help find new solutions to some of our most difficult social challenges."
The partnership is also being supported by the Big Lottery Fund.