Annette Windle transferred £5,000 to an Indonesian bank account, which will be used to distribute the money, as she travelled to visit her daughter Jo-Anne Wau.
Some of the cash will be used to buy stoves and cooking pots destroyed by the Boxing Day tsunami.
Locals will also use the cash to buy bags of rice and noodles from a neighbouring port.
Jo-Anne's dad Stewart Windle said: "Initially the main concern is to give the locals the basic necessities for life.
"They have been without these things since the disaster and hopefully having them back will allow them to start rebuilding their lives."
During the next few days Annette, aged 50, and 27-year-old Jo-Anne will assess how to rebuild the 20 houses which were destroyed by the near three-metre high waves. They will also talk to village leaders about the possibility of renovating the local school or clinic.
Stewart said: "The locals know that the people of Sheffield have been raising money for them, but they don't know how much.
"It wouldn't be wise to spend the money all at once, this should be a long-term commitment."
Jo-Anne's former school, Dronfield Henry Fanshawe, today announced it wants to create a link with the local school in Sorake Beach.
They have asked Annette to build links with teachers and staff during her three weeks in the Indonesian village.
Sue Mason, the Head's PA, said: "We want to create a link between our school and the one in Sorake Beach and we want the cash we have raised to go towards improving their education.
"But at the moment we don't know if the school has been flattened or flooded or whether it escaped unharmed, so we have asked Annette to assess the situation."
The school also hopes to send unwanted text books to the village.
The Star's appeal aims to rebuild Sorake Beach, in the south-west corner of the island of Nias, which was badly damaged by the tsunami.
Jo-Anne, of Dronfield-Woodhouse, started a new life in the village about four years ago.
Annette, a district nurse, flew from Manchester Airport on Tuesday. She was set to arrive in Sorake Beach at about 9am today.