Communities Minister Lord Bourne said it was part of the "Common Good" programme and will gives pots of funding to projects that bring together diverse communities and different faiths.
Projects offered the funding include activities from cookery classes to teaching computer coding.
Lord Bourne said: "There is good evidence to show that our society is well-integrated and that people from different backgrounds get on well.
"However we know there's more we can do during Inter Faith Week to foster greater understanding and reduce incidents of intolerance across the country.
"That is why we're bringing people together and celebrating what we have in common by funding these new projects, giving lasting benefits to neighbourhoods and making them even better places to live."
The grants will be managed by the Church Urban Fund and will given in sums between £250 and £5,000.
Executive Director Paul Hackwood said: "Hate and prejudice and the misunderstanding they create have become an increasingly worrying aspect of our lives in Britain.
"This fund will create opportunities to work together for the common good of all and to show a way of tackling our differences and concerns constructively. It is timely and much needed."
