David Cameron, the Prime Minister, welcomed the plans during his first visit to the Toyota plant at Burnaston near Derby, saying it was good news for Derbyshire, the carmaker and Britain.
The carmaker, which is suffering from a strong yen, announced the plans as part of a €265m investment in Europe, which include building the Toyota Auris compact saloon in Turkey.
Mr Cameron told workers at the plant that he wanted Britain to be a manufacturing success story in this century.
The introduction of the new generation hatchback models will increase production volumes at the plant, creating up to 1,500 new jobs over the next two years. Around 500 of those will be recruited next year.
Currently 550 cars a day are made at the plant, with 137,000 rolling off the production line last year.