The project will run for a 12-month trial period from November.
Additional matched funding will be provided by the Devon Small Grants Fund, administered by Devon County Council, and by the town council itself.
The bus service, which is based on a suggestion made in 1997 by borough councillor Nicholas Waterhouse, will run on a figure-of-eight route throughout the retail area of the town and include an additional stop at Bishopsmead.
The details of the figure-of-eight route were developed by Tavistock Forward which carried out a successful two day trial in December 1999.
The new service will be operated in collaboration with Tavistock and District Local Transport Partnership, based at the Anchorage Centre.
Additional services of this type may also be provided independently through funding from the Market and Coastal Towns Initiative (see story page 1).
Councillor Peter Donkin, who assisted with the Countryside Agency bid preparation, said: 'I am delighted that the hard work put in by many members of Tavistock Forward during the last four years, and more recently by the staff of the town council and the Local Transport Partnership, has been rewarded by support from a national agency.
'It is to be hoped that the hoppa bus service will improve the accessibility of the retail area of Tavistock to people without access to a car and to those who would like to use their car less' he said.