The total pot of between £2 million and £5 million will be spent specifically on improving Tooting Broadway, and some areas of Peckham, with an underlying focus on improving pedestrian safety.
Wandsworth and Tooting Conservatives have lobbied the Mayor to address safety issues at Tooting Broadway and have warmly welcomed news of the fund.
Consultation about how the money will be spent starts in the autumn and will lead to an action plan to improve the junction by the end of the year. Delivery of the improvements should be concluded at latest by March 2018.
Cllr Jonathan Cook, Wandsworth Council's transport spokesman, said: "This is fantastic news for Tooting and will be warmly welcomed by local people. The town centre is a fantastic, vibrant place but there is plenty of room for improvement at this very busy junction.
"We will be working closely with our colleagues at TfL to develop the designs and will ensure they complement our long term plans for improving Mitcham Road. Developing a truly pedestrian friendly environment is key to the town centre's health and helping us unlock its full potential in the years ahead."