The Nissan Leaf will be built in Sunderland from 2013, the company has announced.
Nissan's decision to build the five-seat electric car in the UK will result in the creation of Europe's largest electric car plant. Initial production will be 50,000 units a year.
Nissan also says the decision will protect 2250 jobs at Sunderland, and within its supply chain.
The announcement follows a state pledge to supply over half of the £420m of investment needed to start production. The Department for Business will grant £20.7m towards the plant, while the European Investment Bank will invest £197.3m.
The news will come as a relief to workers at the Sunderland plant, after an initial plan to build the Leaf there was scuppered when BMW rather than Nissan was offered the 2012 London Olympic car sponsorship deal.
Nissan also pointed out that Britain's environmental policy helped its decision, including the "commitment to a low-carb future in terms of infrastructure, customer incentives and educational promotions".