The money came from a grant program linked to Gov. Parris Glendening's smart growth initiative, called the Neighborhood Business Development Program of the Department of Housing and Community Development.
It provides up to $7 million annually in loans and grants to urban revitalization projects like the ice rink.
"This is not just an ice rink. It's a community sports facility with a lot going on," said Chris Nixon, who oversees neighborhood revitalization grants for the state.
She said the state doesn't usually give such large grants. They tend to be in the $100,000 range, or even smaller, like the recent $22,000 the Washington County Arts Council received through the same program.
Nixon said the department was so impressed with the city's plans for the fairgrounds that it was decided to give the full $375,000 requested for the project.
"This is our largest contribution. It puts us within $50,000 of our goal," said Jo Ellen Barnhart, Sports Foundation spokeswoman.
The money will help pay for construction, which is scheduled to be completed Aug. 15.
Also announced Thursday was the state's approval to pay in full the acquisition price of the fairgrounds land for development.
Richard Kautz, planning director for the City of Hagerstown, said the state Board of Public Works agreed to pay 100 percent of the cost of acquiring the land, instead of only half.
He said the unique size of the land space - 68 acres - amid an urban area, and the plans for its community use, justified full state funding.
Other such projects generally receive only half of the money from the state and must find local sources to make up the difference, he said.