The SUV, the company's fourth model, will be built at the firm's site in Crewe and will go on sale in 2016, with an investment of £800 million.
Prime Minister David Cameron, who visited the factory today, said: "This £800 million investment and 1,000 new jobs from Bentley is fantastic news for both Crewe and for the UK as a whole. It is another important milestone in strengthening our economy.
"One sector that we know is sprinting ahead in the global race is our booming automotive industry. One vehicle rolls off a production line somewhere in the UK every 20 seconds and we have just launched the Government's Automotive Industrial Strategy to help continue this success for years to come.
"I am delighted that Bentley will be building their new vehicle here, not only creating 1,000 jobs, but safeguarding many more, as well as increasing training opportunities for highly skilled apprentices."
Dr Martin Winterkorn, chairman of the board of Volkswagen Group, said: "The Volkswagen Group believes in the UK as a competitive location for industrial production. Bentley fans all around the world are looking forward to the brand's first SUV. Together we will make this new Bentley another true Bentley - powerful, exclusive and successful."
"Bentley was the first firm I visited as a Government minister and serves as a real example of high-value manufacturing. They export more than four out of every five cars they make in the UK to the rest of the world."
Bentley's chairman and chief executive, Dr Wolfgang Schreiber, said: "This is excellent news for Bentley and for the UK. Bentley is increasingly successful and this new fourth model line will leverage the success of the global SUV market. The support of everyone involved with the company has been fundamental to this decision, which will ensure sustainable growth for the company."