The funding will take the ship close to its £2.3m appeal target for vital repairs that have kept it out of action for only the second time in its 72-year history.
Waverley Excursions, which runs the Glasgow-based vessel, said an unprecedented 7,500 individual donations had raised £900,000 since the appeal was launched in June.
More than half of the remaining £400,000 is expected from the National Lottery.
The ship’s boilers will have to be replaced after structural defects were found on inspection, in what will be the maritime equivalent of open-heart surgery.
Waverley Excursions chairman Dr Cameron Marshall hailed the Scottish Government’s contribution as a “far-sighted and critical decision which will make the difference in getting Waverley sailing again”.
He said: “We are determined that Waverley will be sailing in 2047 for her centenary – Waverley 100 – so that at least one and maybe two more generations get to feel what we love and have experienced.
“Waverley is an absolute jewel in Scotland’s story.”
Culture Secretary Fiona Hyslop, who announced the funding, said: “Next year is Scotland’s Year of Coasts and Waters, and I don’t think anybody could imagine celebrating that without having the Waverley sailing.
“As part of the Scottish Government’s support, we are calling on the rest of Scotland to get behind the ‘People’s Paddle Steamer’ to make sure the Waverley sails again.”
She told Waverley Excursions: “You still need to get over the finishing line, and that’s what I’m hoping today’s announcement will help you to do.”
Ayrshire-born Ms Hyslop said she had been one of the generations of Scots with fond memories of the ship, having celebrated her 21st birthday on board with a trip from Ayr to Largs.
Waverley Excursions general manager Paul Semple said: “There is no better ship to illustrate the Scottish coast, with cruises that no other ship can offer. The continued support we are receiving is extremely heartening and we would like to sincerely thank everyone who has donated so far.
“We now hope the corporate sector and grant-giving bodies will join the Scottish Government in supporting the Waverley to return to service next summer.”
The new boilers have been ordered and are expected to be installed in January in what will be a four-month operation.
The main electrical switch board, new cabling and generators will also be added.