The grant initiative, which opens in May, will help wildlife trusts and charities fund projects that restore upland and lowland peatlands to their natural state, increasing their capacity to prevent carbon entering the atmosphere, reduce flood risk by slowing the flow of rain water and restore habitats.
Overall, the scheme will target sites with the greatest potential for greenhouse gas reduction, as well as projects that deliver better value for money and maximise environmental benefits.
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It is estimated England's peatlands help reduce greenhouse gases by locking away at least 3.2 billion tonnes of CO2, as well as providing 70% of the country's drinking water.
Environment Minister Thérèse Coffey said: "Peatlands are an iconic aspect of the English landscape which are not only a haven for wildlife but also provide us with clean water and help reduce greenhouse emissions.
"This funding will help restore thousands of hectares of this precious habitat to its natural state and is a key part of our ambition to be the first generation to leave the natural environment in a better state than we found it."
The funding will be available for three years from April 2018 as part of Defra's £100m of capital funding for direct investment in projects that support the natural environment.
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