The plan was announced on Tuesday as the department's dignity ambassador Sir Michael Parkinson released a report on his experiences after a year in the role.
Sir Michael said: 'I gained first-hand experience of the NHS and care services during my mother's illness with dementia. It struck me that whilst there are some excellent examples of care, where people are given the dignity and respect they need and deserve, much more needs to be done.'
He said dignity in care needed to be 'everybody's business'. 'It's not just about the government, nurses or carers,' he said.
Janet Davies, executive director of nursing and service delivery at the RCN said an action day to promote dignity in care and the grant would 'provide additional opportunities to highlight the importance of going that extra mile to provide high quality personal care'.
'Dignified care does not have to be costly - simple things like asking how a patient would like to be addressed do not cost a penny but can make a big difference to the patient,' she said.