Nineteen states, including the two most populous ones of Uttar Pradesh and Bihar, are hit by the disease each year as malnourished children succumb to the virus which is transmitted by mosquitoes from pigs to humans.
"Beginning with the first report in 1955 in Tamil Nadu state, JE virus has now spread to over 171 districts in 19 states," Health Minister Ghulam Nabi Azad said at the launch of the vaccine called Jenvac in New Delhi.
The two-shot vaccine was developed by government agencies and the private Bharat Biotec pharmaceutical firm in a joint venture launched in 2008.
The minister said Jenvac, which offers immunity for three years, would initially cost the government 70 rupees ($1.13) but would be supplied free of charge to the people.
He said India so far had been dependent on China for the vaccine and added that the cost of the locally-developed Jenvac would slide with the scale of production.
"We will eventually need about 10 million doses of the vaccine for comprehensive coverage," the minister said.
The virus, which normally affects children aged below 15, infected adults earlier this year in the northeastern state of Assam, Azad said.
He said the cabinet has approved a 40-billion rupee national programme to combat the virus, which causes brain inflammation and can result in brain damage.
Symptoms include headaches, seizures and fever and health experts say 70 million children nationwide are at risk.