The Department for Transport has signed a public service obligation (PSO) with Dundee City Council to keep the £2.85 million London Stansted route open.
LoganAir will operate the twice-daily service from July 2014, with flight times between the two airports about an hour and a half.
The funding comes from the new Regional Air Connectivity fund announced in the last spending round by Chief Secretary to the Treasury Danny Alexander, who said he is "delighted" it is delivering for Dundee.
Mr Alexander said: "Dundee is a key economic hub in Scotland's thriving economy.
"This will ensure that its key industries remain connected to the rest of the UK. It's good news for the people of Dundee and shows how we are better-off together."
Ken Guild, leader of Dundee City Council, said: "Flights to and from London continue to play an important role in Dundee's long-term regeneration and our position in the country.
"The council will carry on encouraging as many people as possible to make use of the London link."