The two groups have signed a letter of intent and are also planning the development of battery systems for the next generation of electric vehicles, a statement said.
The drive units and "accompanying power electronics" would be used in VW's planned New Small Family of vehicles that are still in the concept stage, it added. VW said it aimed to be the first manufacturer to provide "an emissions-free, affordable and safe large-scale production electric vehicle."
Such a car would not be available right away however, and VW chairman Martin Winterkorn was quoted as saying that "a considerable amount of research and development work still has to be carried out until we can produce the electric vehicle."
Research into lithium-ion battery technology was now being done by VW and "further potential technological partners alongside Toshiba," he added. But Winterkorn called the partnership with Toshiba "a major step forward toward the development of series production electric vehicles for our customers."
Toshiba president Atsutoshi Nishida said that "the combined know-how of the two international technology groups Volkswagen and Toshiba will be an important step towards the drive technologies of tomorrow."
Zero-emission cars are a major goal for auto manufacturers, and all major brands are working towards it. After lagging behind for some time, the Germans have presented several projects, with Daimler and VW planning some offers for 2010 and BMW testing electric systems with its Mini brand of cars.
Specialists estimate however that the first mass-production of electric cars is still 10-20 years away.
Some kind of model should nonetheless be available by 2012, when increasingly strict carbon emissions limits set by the European Union are due to take effect.