Prime Minister Mariano Rajoy unveiled a €3.5 billion ($4.6 billion) plan to boost hiring of young people and help them start businesses.
The double recession sparked by the collapse of Spain's building boom in 2008 has driven the unemployment rate above 55 percent among the under-25s and 26 percent overall.
"We intend this to mark a turning point in our joint battle against the crisis and youth unemployment," Rajoy said, presenting his plan in a speech to business and union leaders.
He said the four-year plan aimed to help more than a million unemployed young people.
The plan includes reductions in social security payments for the self-employed and for companies hiring workers under 30 and over 45.
It invests in training for young people who did not finish high school like many who were lured by unskilled work on building sites during the boom.
The plan will also allow job-seekers to claim benefits while carrying out certain freelance activities or to receive their unemployment allowance in one lump payment and invest it in starting a business.
Rajoy said his plan would benefit from Spain's share of a €6 million fund launched by the European Union to tackle the bloc's high youth unemployment rate from 2014-2020.
EU figures show that the unemployment rate has climbed to 23.6 percent across the bloc.
Rajoy's conservative government last year launched a series of reforms aimed at lowering Spain's budget deficit and strengthening its economy in the long run.
But his spending cuts and tax rises have hit consumption and sharpened the hardship of Spaniards in the crisis, and unemployment has continued to rise for the time being.
Spain's two leading trade unions, the UGT and CCOO, urged a broader shift in favour of growth-oriented policies.
"The measures for youth employment will have a limited effect unless there is a change in economic policy to prioritize jobs," they said in a statement.