The funding will support fair and ethical trading systems in east Africa between 2008 and 2012, with a particular focus on Kenya, Uganda, Tanzania and Ethiopia.
Announcing the funding, Minister of State for Overseas Development Peter Power said: "Poor farmers in east Africa need support to sell their agricultural produce and access markets in countries like Ireland".
This assistance is about helping people to help themselves, he added.
The executive director of Fairtrade Mark Ireland, Peter Gaynor, said the funding would not go to companies, but would be distributed among the small farmers and workers of eastern African countries.
The money will go toward coffee co-ops, tea estates and the provision of agronomy training and marketing support, he said.
"Agronomy training is important in helping farmers to produce products that companies in Ireland and Europe would buy, while marketing support is vital for farmers to understand the market needs of Europe," he explained.
Mr Gaynor said the sale of fair-trade products in Ireland grew by over 100 per cent last year, with more and more companies such as Bewleys, Java and Topaz selling the products.
"If growth continues at this rate, the biggest challenge in the future will be ensuring the people in developing countries can meet market demand."