The government said the work, which is due to begin in 2017, would secure 6,700 jobs and create thousands more.
Mr Osborne told BBC Radio Scotland that the investment was a “massive boost for Scotland and the UK’s defence”.
However, Scotland’s Deputy First Minister John Swinney said the news was clearly linked to Trident renewal which was the “wrong priority”.
The SNP minister believed it was premature of the UK government to “spend money” on projects connected to a new generation of nuclear weapons when a decision on those new weapons had yet to be made by parliament.
The new contracts will include the building of ship lifts, sea walls, jetties and other major projects over the next 10 years.
The announcement followed the Conservative chancellor’s pledge in the summer Budget to maintain the Nato commitment to spending at least 2% of GDP annually on defence.
Faslane on the Clyde is home to the Navy’s fleet of Trident nuclear submarines and is the largest military establishment in Scotland.
Alongside Portsmouth and Devonport, it is one of three major naval hubs.
By Glenn Campbell, BBC Scotland political correspondent
This investment was unlocked by the “no” vote in the independence referendum.
In that campaign, the UK government said Faslane would become home to all Royal Navy submarines.
George Osborne is recommitting to that vision by promising a £500m upgrade over ten years from 2017.
He says it will secure 6,700 jobs and create many more.
But the SNP say he is also pre-empting a vote in Parliament on renewing the Trident submarines that carry Britain’s nuclear weapons.
In the referendum, the Scottish government promised to remove the nuclear fleet from Scotland.
SNP ministers said they’d turn Faslane into a conventional naval base and the headquarters of all the armed forces of an independent Scotland.
They argued that would ensure Faslane remained a major employer. But they didn’t get the “yes” vote to activate their alternative vision.
From 2020, Faslane will be the Royal Navy’s “Submarine Centre of Specialisation” which means all of the UK’s underwater capability will be based in Scotland.
The Ministry of Defence also expect to base Successor class submarines at Faslane when they come into service from 2028.
The base currently hosts about 6,700 military and civilian staff and contractors, but that figure is expected to increase to about 8,200 by 2022.
The chancellor, who was at Faslane on Monday, told BBC Radio Scotland’s Good Morning Scotland programme: “This is a huge investment in jobs, it will secure the 6,500 jobs already here and actually increase the number of jobs to around 8,000 – a massive boost for Scotland and the UK’s defence.”
He added: “In an uncertain world are we really content to throw away Britain’s ultimate insurance policy? These new Trident subs when they come are going to be with us for decades.”
Writing in the Sun newspaper, Mr Osborne said the political consensus that Britain needed a nuclear deterrent “risks being shattered again by an unholy alliance of Labour’s left-wing insurgents and the Scottish nationalists”.
“Some have been tempted to treat the Labour leadership contest as a bit of a joke. On the contrary, I think we should take it deadly seriously,” he said.
“For the new unilateralists of British politics are a threat to our future national security. In a world that’s getting more dangerous it would be disastrous for Britain to throw away the ultimate insurance policy that keeps us free and safe.”
‘Numbers pretty weak’
Mr Swinney told BBC Radio Scotland’s Good Morning Scotland programme that if savings are made by not renewing the Trident system, it would enable money to be invested in conventional forces and “as a consequence enable us to properly protect our country”.
He said: “Our argument in the referendum was that Scotland’s defence contribution would amount to about 1.7% of GDP in Scotland and we believe that to be the appropriate level of defence expenditure to enable us to support our conventional forces and to avoid the unnecessary cost of the Trident nuclear missiles system.”
Mr Swinney also said that Mr Osborne’s “explanation around the substance of the numbers was pretty weak”.
He added: “We have had a variety of different numbers set out. The Labour Party and the UK government have set out very significant numbers associated with defence jobs within the nuclear sector in Faslane.
“The STUC set out arguments some time ago which illustrated a much lower number of jobs dependent on the nuclear weapons system.
“What I think is important is that we should concentrate our decisions and priorities on the right choices around defence and the right choices for me are about making sure that we have an effective conventional defence footprint which operates, yes around the continuation around the base at Faslane, but under a conventional umbrella enabling us to properly protect the country, but also to afford the other priorities that are important to us as a society.”
BATTLESPACE Comment: The Editor ran a story in 1993, later shown on the BBC, that the Faslane Base is built on an active Seismic Zone. The original seismic survey conducted by GEC Marconi failed to locate the Zone which has had 6 earthquakes over 5.6 on the Richter Scale since 1914. Following a new survey the huge Trident Shiplift has a Seismic Monitor mounted on it to warn staff of any impending earthquake! In addition, following the Chernobyl nuclear disaster, new Rules were brought in which required additional engineering works to secure the berthing base floors at the Devonport nuclear base.