The Trenton, Mich., plant, near Detroit, will build the V-6 engines, code-named Phoenix, for Chrysler, Dodge, Jeep and Mercedes vehicles by 2010, Chrysler said.
The Phoenix engines will simplify manufacturing by paring the company's four current V-6 engine architectures to one, Chrysler said.
The plant is part of a $1.78 billion "Powertrain Offensive" investment in five Michigan plants, the automaker said.
The other investments include $700 million to build a new axle plant in Marysville, Mich.; $300 million to expand the paint shop in its Sterling Heights, Mich., assembly plant; and $50 million for retooling for future products at its Warren Mich., truck assembly plant and Warren stamping plant, Chrysler said.
The axle plant will include engineering and development for the creation of new axles that provide better fuel economy.
The Warren upgrades will prepare the plant "for its role in the Chrysler Group's 20 all-new vehicle product offensive," the automaker said.
"We have a vision to grow our business and transform the Chrysler Group into a stronger company that will be competitive for the long run," Chief Executive Tom LaSorda said.