Ministers have pledged to give cash seized from criminals back to communities tackling gun crime.
The Home Office says £250,000 is to go to groups working in deprived areas over the next year.
The cash will go towards local schemes such as mentoring and projects to help young people break away from criminal gang culture.
Last year the government seized approximately £54.5m from criminals; it has a 2004-05 target of £60m.
Under the scheme, local community groups will be allowed to bid for up to £5,000 for projects to keep youths away from crime in areas with a high proportion of gun crime.
The Home Office is also encouraging organisations to bid for funding to work with victims of crime.
Caroline Flint, junior home office minister, said the Connected Fund aimed to support those at the front line of the fight against guns.
"Across the country people are standing up to the criminals who cause such fear and misery and saying 'enough is enough'," she said.
"The Connected Fund has already helped more than 50 groups tackling gun culture in their local areas and is a unique, simple source of funding which both helps kick-start new initiatives and boosts ongoing projects in those areas most affected by gun crime."
Ms Flint said the Home Office had created the fund after lobbying from campaigners who wanted money seized from offenders going back into their communities.
"We want to ensure that small community groups are not prevented from doing valuable work for the want of a small amount of funding."
The government has set a target to seize some £60m from criminals in 2004-05, some of it related to urban drugs and gun crime.
In 2002/-03, the authorities recovered about £40m, £6m directly related to drugs trafficking cash.
One recent analysis of drugs-related crime estimated that £60m a year was being spent on drugs in Brixton, south London, alone.
Maureen Lynch of Mothers Against Guns (Mag), welcomed the Home Office funding.
"Gun crime in Britain is about 10 years behind America, so we have 10 years to stop things getting so bad we have people who think they are gun slingers on the streets," said Mrs Lynch.
"I'm sure that all the groups involved will say that it's never enough money but at last the Home Office is recognising the need to fund community groups.
"The one thing we need them to do is increase the minimum jail term for illegal gun possession from five to 10 years. Five years is nothing to these kids in gangs.
"They are out in 18 months with more street-cred and criminal contacts than they had before. Ten years would make them stop and think."
The Connected Fund is open for applications until 12 November (see internet links).