Local authorities across England will receive a total of £100m to share among early years providers.
Existing settings will be able to use the funding to expand their premises to increase capacity for two-year-old places in poorer areas.
Money will also be available to support new nurseries and childminders to set up their businesses so that they can offer free places to two-year-olds.
Nurseries and childminders have been sceptical about the extent to which they would be able to offer two-year-old places without extra funding to help them expand their businesses. There have been concerns in the sector that only large nursery groups would have sufficient capital investment to take part in the scheme.
A survey by the Pre-School Learning Alliance in June found that out of 1,000 nurseries only one in eight believed that they would receive sufficient funding to cover the costs of providing extra places for disadvantaged two-year-olds. In the same survey only 21 per cent of providers said they would invest their own capital in expanding provision to offer two-year-old places.
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