Brighton and Hove is to be one of six "cycling demonstration towns" promoting cycling as a safe, popular and healthy way to get around.
Thousands of cyclists take part in the London-to-Brighton ride
The Sussex city will receive an annual government grant of £500,000 over the next three years, a figure which will be matched by the city council.
The council hopes the investment will make the city a European centre of excellence for cycling.
New initiatives will include creating safe cycling routes to schools.
Councillor Joyce Edmond-Smith said Brighton and Hove had shown it was committed to making a difference to cycling in the city for all groups and ages.
"It is an essential part of a sustainable city and I know I can count on residents to help us rise to the challenge of this project," she said.
The city has been involved in the annual British Heart Foundation London to Brighton Bike Ride since 1980, with the event attracting more than 550,000 riders in total and raising more than £26m for the charity.
It is the biggest bike ride in Europe and is so popular that applications from thousands of cyclists to take part have to be turned down.
As a result of the investment, work will now start on several new initiatives to increase and promote cycling in the city including the setting up of a Cycle Training Centre for Outstanding Excellence.
Cycling initiatives already include a network of cycle lanes and paths, a cycling map of the city, more cycle stands and practical support for training and maintenance sessions.