Skylark IX, which rescued 600 Allied troops during World War Two, is to be restored and turned into a floating museum on the River Clyde.
She will be saved thanks to £404,000 of funding from The National Lottery.
The work will be carried out by a specialist boatbuilding team working with recovering drug addicts.
Skylark IX was built to hold 75 cruise passengers but ended up sailing from Ramsgate in south-east England to Dunkirk in France between 26 May and 4 June 1940 as part of Operation Dynamo.
The Little Ships helped rescue more than 336,000 British and French soldiers who were trapped on the beaches at Dunkirk.
However, due to disrepair, Skylark IX sank in Loch Lomond in 2010.
It was raised by the Royal Navy following a campaign by veterans supporting the Skylark IX Recovery Trust.
It is currently located at the Scottish Maritime Museum in Irvine.
Anne Dyer, from the trust, said: "Not one day did we ever believe we could not face this huge challenge and in true Dunkirk spirit we never gave up.
"The support from the community has been huge and our vision to continue the Skylark story will ring out for generations to come."
Lucy Casot, head of the Heritage Lottery Fund in Scotland, said Skylark IX was "a part of Scotland's WW2 history."
She added: "As part of her recovery, others will recover too, learning skills that will help secure them a better future.
"I look forward to seeing this little ship's transformation and the enjoyment and learning she will bring to very many people.
The scheme to rebuild the boat is part of a skills development programme run by Dumbarton-based charity, Alternatives.
The Skylark IX Recovery Trust was presented with a Special Commendation Award from the Marsh Christian Trust (Marsh Volunteer Awards) at National Historic Ships UK's 2017 Awards Ceremony.