Plans to make Sheffield the first city in the UK to get a "tram-train" service are on track after £150,000 was granted to the project.
The continental-style carriages, which operate on both tram tracks and existing railways, could run between Sheffield and Rotherham from 2014.
The idea is to cut journey times and make it easier for people to get into city centres, reducing car commutes.
The Department for Transport said the next stage of the project is under way.
Tram-trains are described as lighter, more energy efficient, with faster acceleration and deceleration than conventional trains, making them greener and potentially cutting down on the need for maintenance works.
The new funding will allow South Yorkshire Passenger Transport Executive, Northern Rail and Network Rail to carry out further work on the business and project case for the pilot scheme.
Transport minister Norman Baker said: "Tram-trains offer passengers travelling from rural and suburban areas into city centres a viable, environmentally-sound alternative to short and medium car commuting that can cut congestion and reduce overcrowding at railway stations.
"These sorts of rail fleets are already in use on the continent, but this is a first for the UK.
"The funding we are providing for this exciting project represents a real chance for us to test whether they can be adapted successfully for South Yorkshire and the rest of the UK."
Tram-trains could potentially run on the existing rail freight route from Rotherham before joining the Sheffield Supertram network at Meadowhall South.
The business and project case that the government is funding will look at issues such as the economic and environmental benefits.