There have been concerns about the viability of the airport after Ryanair dropped a number of air services.
First Minister Arlene Foster said the money would allow the airport to plan for the future.
Deputy First Minister Martin McGuinness said the £7m investment was vital because "connectivity is a pre-requisite for economic development".
City of Derry Airport is owned by Derry City and Strabane Council.
The business is currently running at a loss of more than £2m a year and its chairman does not expect it to break even until 2021.
The Northern Ireland Executive has now stepped in to help, but European state aid rules mean the airport cannot just be handed money to cover its operating costs.
Instead, £2.5m will be used for route development, which means attracting new airlines.
A further £4.5m will be used to invest in the airport's infrastructure.
The deputy first minister said discussions are at an advanced stage with another airline, which could pick up some of the lost Ryanair services.
Details of a £7m funding package to support City of Derry airport have been revealed by Stormont ministers.