It said this would encourage the delivery of new high-quality homes, including social and affordable housing, designed and built by local people for local people.
The housing minister said this would support the development of more than 2,500 new homes over the next decade, and the projects will be community-led to address needs in the local area.
It will also allow local community groups to access land and gain planning permission where speculative developments may not be able to.
This social finance fund will be led by Renosance, a fund manager with experience of working with communities to develop homes.
The firm is expected to invest directly in local housebuilding schemes in England over the next few weeks.
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The investment is also expected to generate up to £30m in match funding from the private sector, local authorities and combined mayoral authorities.
Matthew Pennycook, housing and planning minister, said: “Community-led housing not only delivers social and affordable homes for local people, it also gives local communities a greater say on where new homes are built and how they are designed.
“This investment will help community-based organisations overcome barriers to housing delivery and will support the growth of the community-led housing sector.
“Through our Plan for Change, we are boosting housing supply and reforming the housing system, delivering on our commitment to the biggest increase in social and affordable housebuilding in a generation.”
Jon Rolls, head of developing communities at Resonance, said: “This is a landmark moment for our fund and for the community-led housing movement. Ministry of Housing, Communities and Local Government’s investment will act as a vital catalyst, unlocking more support for communities determined to shape their own futures.
“It’s simple – when communities are in the driving seat, brilliant things happen.”
The government has increased its investment in housing to £5bn this year, including an additional £800m for the existing Affordable Homes Programme.
This week, it also announced £2bn in new grant funding for social and affordable homes.
