The towpath between Moor Lane Bridge and Belton Road will benefit from the grant.
Plans to make the River Soar towpath more attractive for walkers and cyclists have been confirmed by Loughborough Town Deal Board.
The £885,000 grant will support a project by the Canal & River Trust which wants to upgrade two kilometres of towpath alongside the River Soar in Loughborough.
Jane Hunt, MP for Loughborough and a member of the Town Deal Board, said: "These plans are hugely welcome and I am really pleased to see Town Deal money being used to fund improvements to the towpath next to the River Soar. It will provide an attractive place to walk or cycle right next to our historic waterways. I am looking forward to seeing it once the works have been completed."
The Canal & River Trust is a charity which looks after 2,000 miles of waterways across the country.
The Trust’s plans for the River Soar will focus on the towpath between Moor Lane Bridge and Belton Road.
Phil Mulligan, Regional Director for the Canal & River Trust, said: “Research shows that spending time by water can help us to feel happier and healthier, and these improvements will make it easier for people in Loughborough to enjoy some time by the river as part of their daily lives.
“We’re very grateful that the Town Deal Board recognise the importance of the river to the town and look forward to making it even better for local communities and visitors alike.”