A venture capital company is to establish a fund of $172m (€125m) that will invest in Irish companies.
The Government is to inject €30m into the fund, which will invest in Irish life science start-ups.
Lightstone Ventures, which was set up two years ago, is an international venture capital firm that funds emerging medical device and biopharmaceutical companies.
The sector has been identified in the Government's Action Plan for Jobs as a fast growing one.
The Department of Jobs will invest €20m through Enterprise Ireland.
A further €10m will be invested by the National Pension Reserve Fund.
This is the third investment by the Government under the Innovation Fund Ireland programme.
The initiative is designed to attract leading international venture capital fund managers to Ireland.
Minister for Jobs, Enterprise and Innovation Richard Bruton said the announcement will come as a major boost for the life sciences sector and will lead to company development and job creation.