A major marketing campaign, 'Backin Belfast' has secured the money from the Department of Enterprise, Trade and Investment.
The announcement comes after a delegation representing the city's hospitality and retail sectors, which employ up to 35,000 people in Northern Ireland, met with Executive Ministers on Tuesday to call for their support.
Campaigners say they are aiming to counter the impact of disruption attributed to flag protests, which they say have diverted shoppers and revellers from the city over the past two months.
It has been estimated that £15m was lost in trade over Christmas, with some pubs reporting trade down as much as 50%.
At least 50 jobs have already been lost across 16 premises, with a further 300 at risk.
But counter-campaigns such as Backin Belfast and 'Operation Sit In' that began on social media have appealed for the public to get out and enjoy themselves while supporting the hospitality industry.
Backin Belfast centres on special promotional offers from local businesses as an incentive to get people back into the city's pubs, clubs and restaurants.
"I believe it's one way of helping traders help themselves," the Finance Minister explained.
"It's one way of trying to restore confidence in Belfast city centre and that's what it's all about.
"There's a whole load of other things need done here, it's not just what government can do but what traders can do to promote the area, it's what the protestors will do in acting in a responsible way, and the police of course in keeping the city open."
"We spent a lot of time last year building up the image of Northern Ireland with our hugely successful NI2012 campaign and I will do everything I can to ensure a positive message continues to be delivered," Enterprise Minister Arlene Foster said.
"Now, more than ever, it is vital that we support our local businesses during what are extremely trying trading conditions. We need a vibrant city centre and I would encourage everyone to support our shops, pubs and restaurants."
The message is clear - Belfast is busy and buoyant. We want people to know that the city is open for business, a warm welcome waits and that there are many day and night time activities on offer.
Enterprise Minister Arlene Foster
Further financial backing for the marketing campaign is expected to be announced by Belfast City Council on Friday.
"Retailers have said that the promotional support given by Belfast City Council before Christmas did have an impact on increasing footfall," SDLP Councillor Tim Attwood.
"It is important that the NI Executive and Belfast City Council provide support now," he said.
"We must demonstrate our continued support for business in the City Centre and other arterial routes not only in the short term but long term.
"This package and the decisions by DOE Minister Alex Attwood to undertake targeted work around dereliction and ease up on retail and hospitality signage are also welcome."
Colin Neill, chief executive of Pubs of Ulster said campaigners had been working tirelessly to promote the campaign said the announcement was a significant step forward.
"Whilst Belfast is the most critical and needs immediate help, these discussions will continue to ensure that the second phase of support -focused on all of Northern Ireland - is delivered in the very near future," he said.
"We cannot stress enough that as well as political support, we need the people of Belfast to get behind this. We want the advertising campaign to act as a call to action, encouraging people to get back in our pubs, back in our restaurants and back in our shops."
Stephen Magorrian, Managing Director of Botanic Inns Ltd, runs 15 pubs in the city said the campaign was a vital step to save jobs and bolster the reputation of Belfast.
"This initiative is about counter-balancing those images. It is an appeal to civic pride," he said.
"It is appealing to the citizens of Belfast not just to sit at home and say how terrible it is that our city is being demeaned on an international stage, but to come in, use and enjoy what the city has to offer, and visibly demonstrate the pride that we all have in Belfast.
"It's also about making sure that those who do come in find value for money and are entertained; that they have a good time that will leave them looking forward to the next visit."
We have all seen the way the city has been portrayed over the last few months, and we all know that these images are not a true reflection of the city in which we all live and work.
Stephen Magorrian, Managing Director of Botanic Inns
Business owners hope the initial positive response will be boosted by the cash injection.
Proprietors of Greens Pizza in south Belfast, Manus McConn and William Clark have engaged with the social media campaigns in an effort to entice custom back to the city.
They expanding their business and creating 25 jobs with the opening of a new pizza restaurant in east Belfast at the end of the month.
"Local people have been very supportive over the years and we've already received lots of queries from people across Belfast about the new restaurant," Mr Clark explained.
"The Backin Belfast campaign is a positive sign that people want to come out and enjoy the great food and entertainment that the city has to offer."
The business partners say the disruption has not dissuaded them from investing in a new business.
"We've been planning this for months and the economic conditions were the biggest concern when we started on this journey," Mr McConn said.
"We're creating 25 jobs in this part of East Belfast and bringing our own brand of pizza to the area and we feel it's important to work through this and to look to the future."