EPA Administrator Lisa Jackson said the money will help shore up aging facilities that are responsible for overflows that pollute beaches and drinking water.
"Today our water infrastructure is working harder than ever to address growing populations, new and old pollution challenges, and tightening budgets," Jackson said in a new release.
The EPA is awarding $127 million to California's Department of Public Health and another $147 million to the State Water Resources Control Board.
The agency said at least 20 percent of the money must be used to fun so-called "green" infrastructure projects that improve water conservation, energy efficiency and environmental projects.
The two agencies will be responsible for awarding dozens of grants or low-interest loans to cities throughout the state for new sewers and drinking water facility upgrades.
Among the hundreds of projects that will likely receive funding are two $10 million grants to the Los Angeles Department of Water and Power for upgrades to Silverlake and Ivanhoe reservoirs, and $20 million to San Diego for significant upgrades to a water treatment plant.
Gov. Arnold Schwarzenegger said the projects will create badly needed jobs.
"Investing in our infrastructure will not only enhance our long-term economic growth and global competitiveness, it will also create jobs now when we need them the most," the governor said in the release.