Belfast City Council made the announcement on Friday after their Strategic Policy and Resources Committee agreed to provide the funding.
The total committed to the campaign now stands at £1.5m.
It has been estimated that £15m was lost in trade over Christmas - with some pubs reporting takings down as much as 50%.
Unrest began in Belfast in early December following a council vote to change the policy of the flying of the Union Flag outside the historic City Hall building. It is now being flown on designated days, when once it flew daily.
At least 50 jobs have already been lost across 16 premises, with a further 300 at risk, it was reported last week.
Now, counter-campaigns such as Backin' Belfast and Operation Sit In, which began on social media sites, are promoting a more positive side to the city by reminding the public of everything that is good about Belfast.
Urging the public to get out and enjoy themselves, while supporting the hospitality industry, is at the heart of the Backin' Belfast campaign.
The council's contribution is being divided in two parts - £150,000 towards the promotion and marketing effort and a further £250,000 towards the animation of the city.
Circus performers, musicians, dancers, street entertainers and mobile mini zoos will provide fun at indoor and outdoor venues throughout the city at weekends for the next four weeks.
Councillor Deirdre Hargey, chairman of the Strategic Policy and Resources committee, said the financial assistance will be taken from reserves which are designed to be used in emergency and one-off situations.
"There was cross party support for this initiative and the speed with which the council has acted on this matter, considering we have political processes to go through, has been nothing short of remarkable," said the Sinn Féin councillor.
"We have listened to the voices that jobs and livelihoods were on the line and no-one is aware more than Belfast City Council of the importance of supporting our businesses not only for the good of the city but as the key economic driver for the entire region."
Lord Mayor Alderman Gavin Robinson said that hearing the experiences of business people face to face had touched a chord with all the elected representatives, resulting in a united response.
We listened to the voices and are providing this £400,000 just a few weeks after also providing £100,000 to promote the city in the run up to Christmas - also at very short notice - showing that politics works and we respond to the needs of Belfast when required.
Lord Mayor Alderman Gavin Robinson
"The business community's tremendous energy, positive attitude and great ideas have been vital in getting us to where we are today," the DUP councillor said.
"As politicians, we may have different political views and positions, but the one thing we are all united on is supporting the economic development of Belfast and improving the prosperity and quality of life of all our citizens."
In a joint statement, Colin Neill, Chief Executive of Pubs of Ulster and Glyn Roberts, Chief Executive of Northern Ireland Independent Retail Trade Association, described the state of Belfast's economy as "critical."
They hope the council's cash injection "encourages people to come back to the city" to make the most of the fantastic retail and hospitality offering.
"In turn, this will help protect the future of hundreds of local businesses and the livelihoods of those employed across Belfast."
The two organisations have pledged to work closely with Belfast City Council, as well as politicians, in a bid to support the city in any way they can.
"However, we need the people of Belfast to get behind our local businesses. We therefore call upon people to get Backin' Belfast by getting back in our pubs, back in our restaurants and back in our shops," the statement ended.
Gerry Lennon, Chief Executive of Belfast Visitor and Convention Bureau, said the announcement represents a major investment for the city at a time when it needs it most.
"The momentum behind this big-impact campaign has built quickly and the speed with which our local councillors, ministers and MLAs have pledged their support to this industry-backed initiative has been overwhelming.
"The campaign has already seen a commitment worth £500,000 by private businesses which adds significant impetus to our joint efforts to increase footfall and continue to build confidence amongst consumers and business across Belfast and the surrounding areas," he concluded.
Joe Jordan, from Belfast Chamber of Trade and Commerce said: "Today's news is very welcome and something that was sought by Belfast Chamber of Trade and Commerce, Pubs of Ulster and NIIRTA since the flag protests began."
He said there was no doubt about the damage that has been to the reputation of Belfast, both with local people and visitors.