The development will consist of a mixture of two-, three- and four-bedroom houses for affordable rent and two- and three-bedroom homes for shared ownership.
The site – in Hanbury Avenue – will be developed by L&H Homes (part of Longhurst Group) with contractors Lindum.
The scheme is due to be completed in October 2019.
The development received support from South Kesteven District Council and Homes England, which provided £538,214 in funding.
Ian Jackson, executive director of portfolio investment at Longhurst Group, said: “We’re delighted to have started work on this exciting development, which contributes to our aim of building around 3,000 new homes by 2020.
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“We’ve developed a lot of properties over the last five years in Grantham and this is a continuation of the good work we’ve been doing to provide much-needed affordable homes for local people.
“South Kesteven has been one of our most important partners for quite some time now, we have a very good working relationship with them and we continue to see the positive results of our partnership like this exciting project on Hanbury Avenue.”
Councillor Matthew Lee, leader of South Kesteven District Council, said: “I’m absolutely delighted to be here to see the start of work on this development.
“Companies such as Longhurst Group are an essential part of what we want to do here, it is based across Lincolnshire, its knowledge and ability to help us deliver is absolutely superb.”