The world's biggest software company and the biggest automaker said they were investing 1 billion yen or about $12 million in Toyota Media Service Co, a Toyota unit that handles its digital offerings for customers.
The unit will focus on combining telecommunications and data for drivers in the form of GPS, multimedia, and managing power on electric and hybrid vehicles.
Toyota is planning to set up a network based on Microsoft's Azure "cloud computing" platform by 2015, which would allow customers across the world access to Toyota's digital services.
One of the services Toyota is planning will monitor and integrate a person's power usage across the home and car to maximize efficiency.
The partnership with Toyota is a departure for Microsoft, which so far has focused most of its auto industry technology efforts on Ford Motor Co.
(Reporting by Bill Rigby, editing by Gerald E. McCormick)