More than 130 car manufacturers, technology companies and research centres across England, Scotland and Wales have been backed by the OLEV Research & Development Fund.
In the North East, Gestamp Autotech Engineering R&D UK Ltd, AVID Technology Group Ltd, Nifco UK Ltd, SR Technology Innovations Ltd and Newcastle University have been backed with a combined total of £570,000.
AVID has secured the largest windfall, with £174,247 being contributed to its mild hybrid medium commercial vehicle proof of concept.
A consortium including Jaguar Land Rover and Nissan has received the biggest amount overall with £1.7m being put towards light weighting technology, which applies the science behind Formula 1 cars and space satellites to make passenger cars weigh less and be more fuel efficient.
Transport minister Andrew Jones said: "Our £38m investment will help Britain become a world leader in this exciting and valuable technology sector, creating skilled jobs of the future as part of our long-term economic plan.
"It will also mean lower running costs for motorists and less fuel consumption, which is good for the environment and our economy."
The winning projects were chosen following a competition launched last September encouraging companies to propose innovative ideas to cut vehicle emissions. The funding combines £30m from the Office for Low Emission Vehicles (OLEV) and £8.2m of additional funding from Innovate UK. Each organisation backed by the fund will begin unveiling working prototypes by 2018 and could feature in passenger cars from 2020.
Roland Meister, head of transport at Innovate UK, said: "This £38m of government support means that more than 130 innovative organisations right across the country now have the chance to get their ideas off the drawing board and potentially into the cars and trucks of the future, boosting the economy by at least £532m in the process."