The money will be used to help it diversify from producing buffalo meat to creating a range of dairy products using buffalo milk from a new herd of milking buffalo.
And among the main produce will be buffalo mozzarella made from the milk produced by the new herd.
A planning application is due to go before Fife Council later this week.
Steve Mitchell, owner of the Buffalo Farm, said: “This is massive news and we are really excited because it’s a giant step in the right direction.
“We took delivery of 96 heifers from Holland which will form the foundation for the milking herd in mid April and we are hoping they will start calving in February.
“We have bought an old dairy farm at Bankhead of Raith where we plan to build our factory and sheds for the animals as well as the milking parlour and although we had to sell some of our beef herd to pay for this we are hoping it will pay off in the long run.
“Our planning application to the council goes in this week and we are working hard to complete our business plan and we will be looking for investors and to the bank to help make it happen.
“It’s a big step and a bit scary, but we have had lots of enquiries and approaches from major retailers about this which reassures me.”
The award to the Buffalo Farm is one of 11 made to businesses across Scotland which have been awarded a share of £3.59 million from the Food Processing, Marketing and Co-operation (FPMC) grant scheme.
The funding will allow local companies to invest in their infrastructure, upgrade or replace existing facilities, and purchase new equipment.
Another Fife company which will benefit from the funding is Crafty Maltsters, a new maltings facility at Demperston Farm, Auchtermuchty, which will receive £144,000 to produce high-end malts for Scotland’s craft brewers.