The world's largest automaker said it aims to sell up to 400,000 units globally a year of the car.
"We are resting the future of cars in this model," said incoming president Akio Toyoda, the grandson of the company's founder, who drove the new model onto a stage at a packed Tokyo showroom.
Both Toyoda's presence and the new Prius are symbolic of Toyota's pursuit of a turnaround from its worst annual loss since its 1937 founding.
The Prius, now in its third generation since its 1997 introduction, is the best-selling gas-electric hybrid in the world, racking up a cumulative 1.256mil units sold in more than 40 nations and regions. The new Prius will be sold in 80 nations and regions, Toyoda said.
But now Toyota faces a challenge from Honda, whose more cheaply priced Insight has sold briskly since it was introduced in Japan in Feb. In Apr, the Insight ranked as the top-selling vehicle in Japan - the first time a hybrid clinched that spot.
Toyota said its Japan prices for the Prius would start at 2.05mil yen, or about US$21,600, less than its predecessor model's Japan base price.
But in an unusual move aimed at competing against the Insight, Toyota also said it will continue to sell the current Prius in Japan - mainly to corporate and rental customers - and cut its price to 1.89mil yen, the same price as the Insight.
In Japan, Toyota is hoping to sell 10,000 of the new Prius a month, and an additional 2,000 of the cheaper old-style Prius.
The Japanese government is offering incentives to encourage people to buy green cars, which is expected to help the Insight and Prius sales here.
Especially from the rear.
Christopher J. Richter, senior analyst with Calyon Capital Markets Asia in Tokyo, said Toyota may be making a mistake by competing with Insight's price because the Prius is a much bigger car than the Insight compact and gets better mileage.
"Given that the two vehicles are different animals, I think that probably isn't the way to go," he said. "It probably damages the Prius brand image by trying to chase after what is an inferior car in price."
Richter also noted that Toyota faces some challenges in selling the Prius not only because of the competition from the Insight but because of the global slowdown and a decline in oil prices.
Toyota had already given the US prices for the 2010 Prius - starting at US$22,000, unchanged from the base price for the 2009 model. It is also promising a more basic US model as well for later this year starting at US$21,000.
The Insight, which is smaller than the Prius, carries a lower manufacturer's suggested retail price of $19,800 for the base model in the US.
Honda has sold 19,492 Insights in Japan since it went on sale in Feb, and 2,665 in the US since Mar.
"We've come up with a price that we think is close to what will make people happy," Toyoda said.
The challenger called the Insight.
The new Prius gets a combined 50 miles per gallon, compared with 46mpg for the 2009 model, according to Toyota.
It does even better under Japanese government testing standards. Hybrids, by going back and forth between a gasoline engine and electric motor, tend to offer better mileage in slow-speed and stop-and-go driving common on Japanese streets, rather than on highways - just the reverse of conventional cars.
Toyota is promising 38km per liter, which converts to 90mpg, in Japan, for the latest Prius.
Underlining its determination to compete with the Insight, Toyota showed a clip from its Japan TV ad at Mon's Prius event, which showed Superman zooming around a city before returning to his human form as Clark Kent, the reporter, with a scoop about the car's low price.
Toyoda hinted there may be a wait for the Prius.
"I already ordered mine," Toyoda said. "If you want yours before the end of the year, go rush to your dealer." - AP