The province and the Prince Edward Island Association of Optometrists are behind the program, called Eye See, Eye Learn, which Finance Minister Wes Sheridan said is aimed at improving children's ability to learn.
"Children who cannot properly see the words in their books or on their screens, or follow along with what is written on the board, may struggle to reach their potential," he said.
The program will begin this fall and eligible children who require glasses will receive them free of charge through a private-sector sponsor.
Another $400,000 has been set aside to buy insulin pumps and related supplies for children with Type 1 diabetes.
Sheridan said the budget stresses the importance of living within the province's means as he aims for a surplus in 2015-16. The deficit for this fiscal year is forecast at $39.7 million.
The government is projecting a 3.3 per cent increase in revenue in this fiscal year, while spending is forecast to jump by two per cent.
"Departments continue to hold expenditures at current levels, while Health PEI is projecting moderate growth to meet the evolving needs of our patients," Sheridan said.
A spokeswoman for Sheridan said all the details of the programs will be released in the coming weeks as departments present their detailed spending estimates in the legislature.
Among other initiatives in the budget, an additional $775,000 will be spent to help run the day surgery department at the Queen Elizabeth Hospital in Charlottetown. An expansion of the department will be completed later this spring, increasing the number of day surgery spaces to 18 from 10, and adding a separate ophthalmology suite.
Sheridan said it isn't possible to provide every health care service on the Island and the government recognizes that travel costs to seek care elsewhere can present a financial burden to some families. To help ease the cost, he said a partnership has been developed with Maritime Bus to help low-income families with the cost of transportation and accommodations.
Over the past year, the province's Liberal government appointed a new chief mental health and addictions officer. Tuesday's budget allocates an additional $1.2 million to address concerns related to drug abuse.
Sheridan said the deficit for the 2013-14 fiscal year was pegged at $51.9 million. That's down from the original estimate of $58.9 million.
The province's net debt is expected to hit $2.17 billion by March 31, 2015. That's about $14,863 for every man, woman and child in the province.
Progressive Conservative Opposition Leader Steven Myers said Sheridan continues to bring in deficit budgets.
"Islanders are suffering and this budget, like all of his budgets, does nothing to address that," Myers said.
"This government and treasurer are out of touch with Islanders and this budget, like all others, shows just how badly out of touch they are."
— By Kevin Bissett in Fredericton
Note to readers: This is a corrected story. A previous version said the deficit was $39.6 million.