The five-year programme will be undertaken in collaboration with four UK universities and the Engineering and Physical Sciences Research Council - the EPSRC.
It's hoped that the cooperation between JLR and the country's leading academics will allow the development of advanced new simulation tools and processes.
The research is aimed at improving the capabilities and qualities of virtual simulations, bolstering the visual quality and even using smells and sounds to make the end results more realistic.
Utilising more advanced simulations would potentially allow JLR to design, develop and test complex vehicle components and assemblies more rapidly.
Consequently, product development times would be cut, saving money. The reduced reliance on physical prototypes would additionally have both financial and environmental benefits.
Business secretary Vince Cable said “With world-class universities and cutting-edge companies like Jaguar Land Rover, the UK is well placed to be at the forefront of driving innovation and developing new technology.
"This investment will support the government’s industrial strategy by boosting the UK’s manufacturing capability and helping to keep us globally competitive.”