The postcode targeting builds on the existing location-based advertising offered by Sky AdSmart. Previously brands could only choose by TV region but now they have the choice of 124 postcodes across the UK.
More than 50 advertisers have already signed up to the initiative, including Hastings Insurance Group and Pendragon, the car dealership.
Graeme Hutcheson, the head of Sky AdSmart, said the introduction of postcode targeting "makes TV accessible to hundreds of advertisers who never thought of using TV as a medium before".
He said: "This can be local businesses or national businesses with stores in specific locations.
"We are seeing the biggest growth with advertising from local businesses and that is very much living up to the ambition initially."
In addition to postcode targeting, Sky has added 50 new audience attributes to its AdSmart offering. Other attributes brands can choose from include directors or company owners, pet owners and fashion tastes.
Sky Media will also now allow brands to use their own customer data to target specific homes. Sky said advertisers could use it to "create their own custom segments, complementing the customer attributes already offered by Sky AdSmart".
Ad revenue from AdSmart increased by 48 per cent in the three months to 30 September 2014, compared with the previous quarter