Australian Prime Minister John Howard unveiled the initiative after arriving in the affected region, and said small businesses affected by the disaster will be able to access tax-free grants of $10,000.
A further $1 million will be donated from both the federal and Queensland governments to the Cyclone Larry Relief Fund, and the federal government will provide $40 million top-up to Queensland for relief and recovery operations, under the National Disaster Relief Arrangements.
Speaking in the worst-hit town of Innisfail, Mr Howard said the federal government would also provide unemployment benefits to affected farmers and small businesses for six months.
Mr Howard said the Commonwealth and Queensland governments had agreed to make available concessional loans of up $200,000, with no interest to be payable for the first two years.
"In addition, if the money borrowed is used for the purposes of re-establishing a business such as replanting sugar cane ... we will make available 25per cent of the $200,000 loan as a cash grant," Mr Howard said.
He said the package is a necessary response to the devastation.
"We believe that is a reasonable and sensible and fair and necessary response to a very, very difficult situation," he said.
Mr Howard, accompanied by Premier Peter Beattie and Opposition leader Kim Beazley, toured the devastated region and spoke with affected residents, farmers, and emergency workers.
He was heckled as he walked down Innisfail's main street.
"Come and wait in line," shouted one person in a line of several hundred people queued up for hours outside government buildings to ask about emergency financial aid.
Mr Howard also visited a devastated banana plantation near Innisfail.
The prime minister said he hopes that local will appreciate that the government moved quickly to announce federal aid measures, and that Cyclone Larry had not been anyone's fault.
"Therefore a country like Australia can afford to be fair and generous and to help people get back on their feet," he said.
Mop-up in region
Meanwhile, heavy rain has disrupted the flow of relief to affected areas.
Weather forecasters are keeping a close eye on Tropical cyclone Wati, which is brewing in offshore waters, however they said they cannot tell whether it will cross the Queensland coast.
Wati is currently a category three storm and is expected to intensify.
"At this stage it is moving pretty slowly," said forecaster Cathy Muller.