About £1bn will be spent on improving NHS technology so doctors and nurses can share access to patients' electronic records.
Hospitals, GP surgeries and out-of-hours doctors will be able to access details with the aim of improving care and relieving pressure on A&E, while cash will also be spent on systems to ensure all patients can book GP appointments and order repeat prescriptions online by March 2015, as well as giving patients access to their online GP record.
Health Secretary Jeremy Hunt said the £12bn failure of the previous government's National Programme for IT should not deter the NHS from taking steps to keep up with technological advances.
The government believes going paperless will cut the amount of time staff spend on admin and will reduce prescribing errors when paper notes are lost.
Hunt said: "The public are rightly sceptical about NHS IT after the failures of the past. But we can't let past failures hold patients back from seeing the benefits of the technology revolution that is transforming services all around us.
“It is simply maddening to hear stories of elderly dementia patients turning up at A&E with no one able to access their medical history. That's why I've set the NHS the challenge of going paperless by 2018.
"This is the opposite to the previous approach where a one-size fits all solution was clunkily imposed from Whitehall. Instead, this fund will empower local clinicians and health services to come together and find innovative solutions for their patients.
"Technology is key to helping our A&E staff meet the massive demand they face as the population increases and ages. This is something on which the government must and will succeed."
Around £500m will come from the Department of Health for the three-year venture, with the other £500m from local health systems matching the funding they receive.
Tim Kelsey, national director for patients and information at NHS England, said: "A single patient record will help make the patient journey from hospital to home seamless, giving professionals from different health and care organisations access to information when they need it most, without patients having to repeat themselves every time they speak to a different doctor, nurse or care professional.
"This extra funding will help us better meet the overwhelming demand from the Safer Hospitals, Safer Wards fund announced in May this year. It's great news for the NHS and great news for patients."
Mike Farrar, chief executive of the NHS Confederation, said: "Patients find it massively frustrating when they have to give their personal details or medical history multiple times over, sometimes three or four times in one hospital visit. Clinical and support staff find it just as frustrating having to ask them.
"If today's funding is invested in the right tools and technology on wards, in clinics and in the community, clinical staff can spend less of their valuable time filling in forms and more of it giving patients the care and treatment they need."
Labour health spokesman Jamie Reed said: "This out-of-touch Tory-led government are sorely mistaken if they think announcements on technology alone will take the pressure off A&Es put under pressure by David Cameron's failure in the NHS.
"David Cameron's A&E crisis has been driven by the collapse of adult social care as council care budgets are slashed, alongside the loss of 5,000 nursing jobs. Ministers must focus more on shoring up social care and ensuring wards have enough nurses, and less on pet projects."