The scheme was announced by Gordon Brown at the Labour Party conference
The government is to create 10,000 "skilled internships" aimed at helping university graduates find employment with small companies.
Under the initiative, participating graduates will be able to get a grant of £100 a week towards their wages.
This would then be topped up by their small firm employer.
The Federation of Small Businesses (FSB), which helped develop the scheme, said graduates would get "real work experience and develop real skills".
The initiative was announced by Gordon Brown at the Labour Party conference.
"Even in the midst of tough economic times, we are encouraging a whole new generation of young Britons to embrace ambition and British enterprise," said the prime minister.
FSB chairman John Wright said it was "a victory for small businesses across the country".
"This will help those graduates leaving university at a time when the job market is sluggish at best," he added.
"Small firms will benefit from the skills of this workforce, which they traditionally find harder to recruit."
Mr Wright added that the FSB was committed to promoting the scheme among its members.