The East West Rail project has been awarded £760 million to help restore a section of the line between Cambridge and Oxford.
The Department for Transport (DfT) said the funding will help reinstate services between Bicester in Oxfordshire and Bletchley in Buckinghamshire for the first time since 1968.
Transport Secretary Grant Shapps said: "Restoring railways helps put communities back on the map and this investment forms part of our nationwide effort to build back vital connections and unlock access to jobs, education and housing.
"Returning these routes to their former glory, and progressing work to reopen even more lines and stations, shows our commitment to levelling up journeys across the country as we build back better from the pandemic."
The section between Bicester and Bletchley will include the construction of new stations at Winslow and Bletchley, as well as enhancements to existing stations on the route.
By 2025, two trains per hour will run between Oxford and Milton Keynes via Bletchley.
Simon Blanchflower, chief executive at East West Railway Company, which is overseeing the project, said: "We are delighted that the Government has shown a big commitment to East West Rail and the Oxford-Cambridge Arc with today's investment decision.
"This funding will enable us to get on with the construction work that will connect communities who live on the East West Rail link."