Lets Sort It Sheffield, will run for three years, managed by environmental body Enventure. The cash comes from Onyx Environmental Trust and Viridor Parkwood.
The city produces more than 250,000 tonnes of household waste each year.
The campaign will seek to raise public support for waste reduction and recycling.
Home secretary David Blunkett, who represents the city's Sheffield Brightside constituency, said: “This is one of those issues where we are all in it together, both improving our environment and re-using our scarce resources.
“Government, nationally and locally, must do their bit, but this concerns us all, from individuals through to private enterprise.”
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