The second-generation Prius was released in September 2003, featuring a 5-door hatchback body instead of its predecessor's semi notchback 4-door sedan styling. The wheelbase, body length, and width were lengthened by 150 mm, 135 mm, and 30 mm, respectively, enlarging the interior space. Its side view had a triangular silhouette, with the apex located on the roof directly above the driver. The roofline ended relatively high at the rear, and the top of the rear-end panel was inset with a transparent window to improve rear visibility. The drag coefficient value was extremely low at 0.26.

The Toyota Hybrid System (THS) used in the previous model was upgraded to THS II, while the engine (1NZ-FXE) boosted its revolution speed and the motor (3CM) increased its output by 50% to 50 kW. The fuel efficiency level improved to 35.5 km/l (under the 10-15 mode test cycle), which was among the best in the world. The Prius also came equipped with a number of world's first technologies, including the Intelligent Parking Assist system to semi-automate curbside parking, the Steering-assisted Vehicle Stability Control system (S-VSC) to unify the control of anti-skid and power steering systems, and an electric inverter-controlled automatic air conditioner that remained operational even when the engine was stopped in the idling reduction mode.