Education Secretary Fiona Hyslop has announced a £1.5m package to allow Glasgow University to reopen admission to undergraduates at Crichton Campus.
The institution abandoned its 2007 intake of undergraduate students - sparking fears of a staged withdrawal.
Ms Hyslop said the announcement was a "huge step forward" for the skills and economy of southern Scotland.
Her statement followed the publication of a joint-strategy for the future of the campus in Dumfries.
The University of Glasgow announced the closure of undergraduate admissions earlier this year in the face of £800,000-a-year losses.
The recruitment of students will resume next year.
As well as allowing for their return, the support announced by the executive will also see investment in teacher education and infrastructure costs.
Ms Hyslop said that the announcement - combined with the joint academic strategy - meant a clearer future for the campus.
"The vision and aims of the strategy have our support," she said.
"That's why today, alongside its publication, I am announcing these additional measures from the Scottish government to support the partners in implementing the strategy's actions."
She said that the executive support would provide an "important impetus" in getting the strategy off the ground.
"This is a huge step forward in providing the skills which are essential if the economy of the South of Scotland is to flourish," she said.
Sir Muir Russell, centre, joined celebrating students in Dumfries
The joint strategy for the campus was unveiled by the Scottish Funding Council (SFC).
It said it would mean the site could offer a wider range of subjects, teach more students and improve economic development links.
The strategy was developed with all the institutions on the site - including the University of Glasgow, Dumfries and Galloway College and the recently-merged University of Paisley and Bell College.
A range of local agencies were also involved.
SFC chair John McClelland said: "It is a fundamental breakthrough that all the partners have combined their individual goals for the campus to produce one academic strategy for Crichton.
"I am delighted we have been able to help develop the strategy and we look forward to seeing Crichton campus develop and grow in the coming years."
The announcement was greeted as "great news" by University of Glasgow Principal Sir Muir Russell.
"We are proud of our achievements at Crichton and we are glad that its value has been recognised," he said.
He said the funding would allow the university to continue its liberal arts degree and offer new postgraduate programmes.
"This settlement also removes from the university the crippling burden of overhead costs which has been a major factor in our recurring deficit at Crichton," he said.
"Overall these decisions enable the university to move within a reasonable timeframe to a break even basis for our operation at Crichton, which has always been our bottom line."