The pollution was caused by the accidental release of sodium hypochlorite from Beddington Sewage Treatment Works on September 17 2007, killing thousands of fish.
Thames had been cleaning its tertiary treatment screens with Sodium Hypochlorite, which was accidentally discharged into the river, rather than recycled. Thames immediately accepted responsibility for the incident but may still face criminal prosecution by the Environment Agency.
The £500,000 fund will be slpit into two: £250,000 for the Rejuvenation of the river, and a further £250,000 for a restoration fund used to improve the amenity and health of the river.
The Beddington sewage works will receive significant improvements, including water quality monitoring apparatus to give real-time analysis of the water quality within and leaving the works.
Thames Water's CEO, David Owens said: "Thames Water was quick to acknowledge that we caused this incident and we are acting quickly to not only restore, but improve the health of this important river.
"We have been working particularly closely with the Anglers' Conservation Association, as well as other local groups to ensure that the programme being put into action now yields real and lasting results. It will provide the resources to support the ongoing stewardship of the river and create a fund which can be used to continually restore and improve the health of its habitats."