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Oxford's Reaction Engines Ltd (REL) announced it has received a €10,000 development contract with ESA, so it can work on its revolutionary Synergistic Air-Breathing Rocket Engine (SABRE).
This technology can work both in the Earth's atmosphere and in space - which is crucial to space planes.
The grant will add to the UK Government's commitment to invest £60 million in SABRE.
The project has also seen investment from defence company BAE Systems and the US Air Force.
"We've had valuable support from ESA and UKSA [UK Space Agency] to date, and today's agreement is a further vote of confidence not only in the revolutionary potential of this technology, but our ability to deliver on it," Mark Thomas, CEO of REL said in a statement.