The fund will provide instruments for hundreds of 11 to 15-year-olds, as well as training grants for young musicians aged between 16 and 30.
The cash was collected from record sales and phone votes from the TV talent show, won by David Sneddon in 2002.
The idea behind the fund is to help young people develop their musical talents and achieve their ambitions.
People are being invited to apply for the first round of instrument awards from Tuesday.
By calling 0800 771 234 between 8am and 10pm, they can find out how to make a application online for free.
Applications will be accepted until 19 July, although only the first 7,000 replies will be considered.
The training grants scheme will be launched on 1 August, when application forms will be posted on the Fame Academy website.
Fame Academy has been working on the scheme with Youth Music - a charity which aims to bring music to young people across the country.
A new series of Fame Academy will be shown later this year, when all the profits from the voting will be given to the fund.