Volkswagen says it will build a new seven-passenger SUV at its Chattanooga, Tennessee, factory, adding about 2,000 jobs.
The German automaker says it will invest $600 million in the factory and a new research center that will employ about 200 engineers.
Production of the new SUV is scheduled to start at the end of 2016.
The plant now employs about 1,500 workers and makes only one model, the Passat midsize car.
The company says the SUV is part of a plan to increase U.S. sales to 800,000 vehicles by 2018. VW sold just over 407,000 vehicles in the U.S. last year including its Audi, Lamborghini and Bentley brands.
The new model is seen as key to reviving Volkswagen's flagging sales in the U.S.