Written on now-fragile birch bark, palm leaf and paper, the 2,000 manuscripts in the collection at the University Library express centuries-old South Asian thinking on religion, philosophy, astronomy, grammar, law and poetry.
The project, which is led by Sanskrit-specialists Dr Vincenzo Vergiani and Dr Eivind Kahrs, will study and catalogue each of the manuscripts, placing them in their broader historical context, a university release said.
Most of the holdings will also be digitised by the library and made available through the library's new online digital library (http://cudl.lib.cam.ac.uk/).
'In a world that seems increasingly small, every artefact documenting the history of ancient civilisations has become part of a global heritage to be carefully preserved and studied,'explained Dr Vergiani, who is in the University's Faculty of Asian and Middle Eastern Studies.
'Among such artefacts, manuscripts occupy a distinctive place - they speak to us with the actual words of long-gone men and women, bringing their beliefs, ideas and sensibilities to life'.
He added: 'One reason this collection is so important is because of the age of many of the manuscripts. In the heat and humidity of India, materials deteriorate quickly and manuscripts needed to be copied again and again. As a result, many of the early Indian texts no longer exist'.
Some of the oldest holdings of the Library's South Asian collection were discovered not in India but in Nepal, where the climate is more temperate.
In the 1870s, Dr Daniel Wright, surgeon of the British Residency in Kathmandu, rescued the now-priceless cultural and historical artefacts from a disused temple, where they had survived largely by chance.
An early catalogue of part of the collection in 1883 found among its treasures a 10th-century Buddhist Sanskrit manuscript from India - the oldest dated and illustrated Sanskrit manuscript known worldwide.
More than half of the collection is in Sanskrit, a language that has dominated the literary culture of pre-modern South Asia for almost three millennia.