The second-generation Vitz that was released in February 2005 represented an evolutionary change, in which the exterior design preserved the overall image of its predecessor while the functions improved significantly. The platform was renewed to improve the collision safety performance, and the enlarged body translated into a more spacious cabin and greater cargo carrying capacity. Various seat arrangements and storage spaces also enhanced the utility of the vehicle.

Starting with the second-generation model, the overseas markets for the Vitz (under the Yaris name) expanded from Europe to include North America.

Although the body variation was narrowed to just a 5-door hatchback in Japan, a 3-door model continued to be available in overseas markets. All engines were of the DOHC 4-valve type, including a 1-liter 3-cylinder unit (1KR-FE), a 1.3-liter 4-cylinder unit (2SZ-FE), a 1.3-liter unit for the 4-wheel-drive (4WD) model (2NZ-FE), and a 1.5-liter 4-cylinder unit (1NZ-FE). The available transmissions included a CVT with the torque converter, a 5-speed manual for the RS model, and a 4-speed automatic for the 4WD model. The idle-stop system was introduced in April 2005.

With the introduction of the second-generation Vitz, many of the models handled by the Netz sales channel began to carry the original Netz emblem (based on a stylized letter N) instead of the Toyota emblem.