Friends of Wombwell Cemetery will use the lottery cash and heritage grants to turn the crumbling church into a community hub.
Some of the money will also go towards putting on guided walks and displays at the graveyard near Barnsley.
Mike Bretton, chairman of the group, said he hoped the revamped building would be open by the end of the year.
He said: "We've had two or three [attempts] at trying to get this off the ground and finally the gods have smiled on us and we've ended up with all this lovely money, which we can use to the benefit of the community and preserve our heritage.
"We need a community facility in Wombwell and we've got the backing of the community."
The group received £78,000 from the Heritage Lottery Fund and £43,400 from WREN, as well as grants from other organisations totalling £23,000.
Planned repairs to the chapel include replacing the floor and windows, installing heating and creating an exhibition space.
Campaigners have been awarded £145,000 to save a grade II listed chapel from dereliction.