Fiat will increase annual car production in Italy to one million over the next three years.
That will be despite going ahead with the planned closure of the smallest of its five Italian factories, based in Sicily, by 2011.
Fiat chief executive Sergio Marchionne revealed the one million unit target after a meeting with government and union officials in Rome.
The Italian car manufacturer also said it would spend £7bn in investments and research over the next two years, mostly in Italy.
Fiat produced nearly 650,000 vehicles in Italy in 2009, and the Italian government has been urging Fiat to increase production.
Marchionne said a Fiat factory in Turin would produce two Chrysler models by 2012.
He also hinted that the production of the Fiat Panda could be transferred to its Pomigliano factory in Southern Italy.