Most of the money - $850 million - will go towards creating a further 10,000 home care packages to allow older Australians to continue living at home with support.
The funding package will be outlined in the Morrison government's mid-year budget review on Thursday.
Labor's aged care spokeswoman Julie Collins is disappointed the government hasn't flagged any extra money for residential aged care. She thinks another 10,000 home care packages is nowhere near enough to make a dent in lengthy delays Australia's elderly are facing.
"How is it acceptable that older Australians in their nineties are waiting years to receive their approved care," Ms Collins said.
The Morrison government has not done enough to fix this crisis.
Aged care has been a sore point for the federal government this year, with criticism of its handling of its pandemic response to stop the virus entering residential facilities and infecting Australia's vulnerable.
The majority of Australia's 908 coronavirus deaths have been in aged care facilities, mainly in Victoria.
Cases are now dwindling across the country as restrictions ease and state borders open.
Aged Care Minister Richard Colbeck says the virus is the "greatest challenge the sector has ever faced".
But the Australian government is moving beyond responding to the pandemic to drive the biggest transformation of aged care in our nation's history.
The funding package includes $8.2 million to extend Victoria's aged care response centre until the end of June next year to ensure it's prepared as the pandemic continues.
More than $15.7 million is earmarked for allied health groups for residents living in facilities battling COVID-19 outbreaks.
The new money will also go towards boosting the sector's coronavirus response, improving mental health care support and Medicare-subsidised psychological services.
Action stemming from the royal commission into quality and safety in aged care has also received funding.
More than $11 million over five years will help implement the Serious Incident Response Scheme to protect senior Australians from abuse and neglect.
This year's federal budget also included a $1.6 billion boost to create more than 23,000 home care packages.