Harlaw Hydro intends to build the device on the outskirts of Edinburgh, following in the footsteps of 19th century industrialists who harnessed the power of the Water of Leith to power their mills.
Local residents of Balerno have been working on the bid for two years and believe they can deliver the entire project for just over £300,000.
Construction will begin within months and is estimated for completion in March 2014.
The Balerno Village Trust - which established Harlaw Hydro - had intended to borrow much of the money from the banks, but said they were astonished at the level of interest from those who wanted to invest privately.
Energy Minister Fergus Ewing has backed the project and said the funding model paved the way for other schemes across Scotland.
The Community Share Offer used to raise the funds is similar to ‘crowdfunding’, which has been employed widely on the internet to fund full-length feature films and music albums.
The group arrived at the £313,000 mark on Wednesday - just 12 weeks after fundraising began.
Consultants hired to work on the project said such is the success of the model that two similar schemes on Skye and Mull are also now in development.
The Harlaw project will take advantage of government feed-in-tariffs, which pay families or community groups to generate renewable energy.
Lynn Molleson, a director at the firm, said investors had been attracted by the four per cent return on offer - higher than any ISA on the market due to low interest rates.
The electricity - which is fed into the National Grid in return for the tariffs - is only enough to power around 60 homes, but the group hope that the scheme will pave the way for other similar projects. in the future.