The Government will provide the cash over the next two years to help both first-time buyers and existing homeowners looking to buy new-build property.
Ms Sturgeon said the scheme will help buyers and the construction industry. Ministers are working with key figures in the house-building sector to develop the initiative.
"People in Scotland who should rightly be able to afford a mortgage are still facing real challenges buying a home," Ms Sturgeon said at the Homes for Scotland annual conference, where she made the announcement.
"We are well aware of the challenges that people face and want to continue to do all we can to help.The £120 million funding announced today will not only help people to buy their first home, it will also help second-steppers to be able to sell their home and to move to another property."
Those who successfully apply to the scheme will buy the majority share of a new-build property, with the Scottish Government buying the rest. When the property is sold on, the Government then receives a cash sum proportionate to its share.
He said: "Home building is one of the most effective ways to stimulate the economy because of its strong employment and output multiplier effects. With strong evidence to demonstrate the significant positive impact shared equity schemes can make, a well-designed and funded initiative could be a game changer in Scotland.
"Timing, however, is crucial and we therefore look forward to working closely with the Scottish Government to ensure this option is made available to help home buyers here without delay."
Paul Smee, director general of the Council of Mortgage Lenders, said: "We welcome and support the Scottish Government's efforts to stimulate the house-building sector and we look forward to working constructively with the Government to help deliver this scheme."