Toyota has announced that it made 10.175m cars last year, less than Volkswagen's 10.3m - the first time Toyota has lagged behind its German rival for four years.
The Japanese carmaker said its exports to North America, the Middle East and Africa had fallen. Volkswagen was boosted by buoyant sales in China.
Volkswagen's victory comes after its image and share price was hit by an emissions scandal in 2015.
On Friday, it emerged that the former Volkswagen chief executive Martin Winterkorn will be investigated over the emissions scandal. German prosecutors have said he knew the company was cheating emissions tests, and that they were investigating him for fraud.
Volkswagen also faced around 1,400 lawsuits in relation to the scandal (including claims from investors) and set aside more than £15bn to cover the cost of vehicle refits and a settlement with the US authorities. The company ultimately secured a £3.5bn draft settlement with US regulators.
General Motors will release figures next week, but it is thought its figures will be behind its Japanese and German peers.