The funding, which should see 50 new jobs created at the firm, will enable Proper Cornish to convert an empty 48,000sq ft unit on the Walker Lines Industrial Estate – involving a total of £3.75m in capital.
The converted building would accommodate a modern bakery and head office.
The investment will also enable the pasty firm to achieve efficiencies by combining its six current locations, and will help to safeguard the jobs of the 183-strong existing workforce.
The £5m Business Catalyst Fund is delivered by Cornwall Development Company on behalf of the Cornwall & Isles of Scilly Local Enterprise Partnership and Cornwall Council.
Paul Saunders, group financial director for Proper Cornish, said: “We are delighted that the LEP has recognised the opportunity this project offers in terms of sustainable employment and business growth.
“Funds such as these are vital in the current economic climate and we are excited to be able to move the business forward in such a positive way.”