The Eddington report proposed investing in small local transport improvements, which could provide provide big returns.
Local government minister Rosie Winterton said the cash was in addition to £2.3bn already announced for major local authority schemes and Highways Agency schemes of regional significance over the next three years.
The £4.04bn package consists of £1.77bn for integrated transport improvements and a further £2.27bn for highways capital maintenance.
The government says that the package builds on £8.5bn provided to local authorities over the last seven years for small local transport improvements and capital highways maintenance.
"Local Transport Plans have been implemented for more than six years," said Winterton.
"Local transport authorities can be proud of the way they are creating safer, cleaner environments. They have made great progress in reducing local road casualties, improving the condition of many local road networks, providing facilities for cyclists and pedestrians and integrating of transport planning alongside that of health, education and housing," she said.
Conservative shadow secretary of state for transport, Theresa Villiers, said: "This announcement can't disguise Labour's heavy handed approach in trying to bully local authorities into road pricing by stopping them bidding for money from the Transport Innovation Fund unless they promise to introduce congestion charging.
"Nor can it disguise the Government’s broken promises on cutting congestion and increasing bus usage and cycle journeys. Furthermore, after the debacle of thousands of pounds spent on tram schemes in Liverpool and Leeds, only for the Government suddenly to pull the plug and cancel them, Labour's local transport policy clearly has no credibility," she said.