The scheme gives £1m to 150 deprived areas in England with populations of between 3,000 and 10,000 people.
It focuses on areas that have traditionally not received high levels of BLF funding and other charitable grants.
Funded by the BLF, it is run by Local Trust, an organisation created by the Community Development Foundation and a consortium of partners.
The scheme is not open to applications and decisions are made centrally by the BLF.
Residents, charities and other community organisations in each chosen area are asked to form partnerships to decide local priorities and create a long-term plan to distribute cash based on those needs.
The plan must be agreed with the Local Trust, but residents have discretion about how to spend the money, including giving grants, making loans and setting up community buildings.
Money is held in a central endowment and released to areas when they need it.
The first 50 areas were chosen in July 2010. The final 50 are due to be selected by the end of the year.
Another £50m will be spent on a range of support activities, including the provision of support officers, training and childcare and travel expenses to those delivering the scheme.
Nat Sloane, England chair of the Big Lottery Fund, said the scheme would not only provide funding, but also build skills among residents and increase people’s trust in one another.
"We know that local people are often best placed to identify what’s needed in their communities, and through this scheme we are putting them at the heart of decision-making," he said.