Less than three metres long but packed with intriguing design features, the Toyota iQ is an unashamedly upmarket city car that will appeal to those who find a Smart too twee. Designed to seat three adults and one child, the interior finish and exterior detailing are several notches above the city car norm.

Toyota isn't the first company to build and market a city car specifically to a more upmarket clientele. It was exactly this business model that Smart profited so handsomely from and Toyota has followed suit with its Prius hybrid vehicle, not strictly a city car in the strictest definition, but most certainly a car targeted at wealthy urbanites. Given that the company already has the cheap and competent Aygo on its books, backed up with the bigger and plusher Yaris, a third tot would seem like overkill but the iQ is a very different proposition. If it wore a Lexus badge, the proposition would be a whole lot clearer.

This is a market sector that looks set for big expansion given the rapidly increasing costs of using a car in many metropolitan areas. Many car buyers are looking to downsize without sacrificing comfort and style and it's no secret that several premium manufacturers are looking to service exactly this demand. They could learn a thing or two from Toyota.

The engine on offer is the well regarded 67bhp 1.0-litre 3-cylinder petrol unit used in the Aygo citycar. This powerplant is billed as the world's lightest production engine. Like the Aygo, the iQ is urban transport first and foremost, reflected in a sprint to 60mph that takes around 15 seconds. If going fast isn't too much of a priority, there's also the option of a CVT Multidrive automatic gearbox.

At lower speeds the steering's electric assistance should make manoeuvring the car simplicity itself and the minimal front and rear overhangs will mean that it's easy to edge into even the tiniest parking places. The tight 3.9m turning circle means that even if you spot a parking place on the other side of the road, you may be able to throw a quick U-turn to snaffle it.

"If you thought that all small cars were the same, then think again.."

In order to appeal to an image conscious clientele, the iQ had to look the part and with what Toyota dubs its foursquare 'super stance', it looks like something that's just driven straight from a motor show stand. There's a touch of the toy car about the way the big 16-inch alloy wheels sit at each corner of such a tiny vehicle. The wraparound rear glass, the smoked headlamp units and the door mirrors with inbuilt indicators all indicate that this is no budget city scoot but the real surprise and delight features come inside.

The innovative asymmetric dashboard was designed to open up the whole cabin area. It ensures ample leg room for the front passenger, even when the seat is in its furthest forward position. The sliding seat configuration allows an adult 190cm tall to sit comfortably in the rear seat behind a front passenger of the same height. Shoulder-to-shoulder distance between driver and front passenger is 50mm wider than in Toyota's supposedly larger Yaris supermini and bears comparison with a Mondeo-sized vehicle. A flat under-floor fuel tank, a 20% smaller heater unit and repositioned steering gear all make this possible. The all-round space and seating layout means there is ample room for three adults plus either a child passenger or luggage behind the driver. The rear seats fold flat and there's a storage tray that slides from below the rear seat.

The iQ is available in two grades, iQ and iQ2, both of which feature no fewer than nine airbags including the world's first rear window curtain shield airbag. All models come with the kind of standard specification that you'd expect in a much larger car. The entry-level iQ rides on 15-inch alloy wheels and projects a clean, contemporary appearance with colour-keyed door mirrors and bumpers and heated electrically adjustable door mirrors with integrated indicator lamps.

Air conditioning keeps things cool inside, while the six-speaker sound system provides a radio, CD player and MP3/WMA file playing from disc. There is also an auxiliary socket for connection to personal MP3 players. Electric windows, remote central locking, dark tinted privacy glass in the rear window and leather trim for the steering wheel and gear knob are also all included, together with a tonneau cover for the rear luggage space.

Upgrading to iQ2 brings more sophisticated features. The alloys gain a high-gloss finish, fog lights are neatly integrated into the lower front bumper section and there are bi-halogen headlights with a smoke-tinted finish to their glass covers. The door mirrors are electronically retractable - handy for those ultra-tight parking spots iQ drivers will be making the most of. Climate control air conditioning, smart entry and push-button start, automatic headlights and wipers and an auto-dimming rear view mirror are also included.

First the basics. You'll pay about the same for an iQ as a comparably specified 1.0-litre Yaris and about £1,200 more than the plushest 1.0-litre Aygo. Bear in mind though that both these alternatives can seat at least four adults. Perhaps a more pertinent comparison however, is with the two-seater smart fortwo, which in its plushest form is only a few hundred pounds shy of an iQ for something much less versatile.

Toyota has committed to a low carbon dioxide figure for the iQ, with a figure of 99g/km achievable in the manual models. Fuel economy is even more impressive than the Aygo, (which already manages over 60mpg on the combined cycle) as that same engine achieves over 65mpg in the iQ. While there will certainly be cheaper city cars to buy, few will be able to match the iQ's ongoing costs and the residual values of such a premium model are likely to be very strong.

Even if you do have a small shunt in your iQ, body panels are designed to come on and off very easily, lowering the cost of repair. With such low carbon dioxide emissions, the Aygo is not only a model environmental citizen but it also qualifies for a 100 per cent exemption under the forthcoming London congestion charge legislation, which is well worth knowing.

With the iQ, Toyota's designers set out to turn conventional small car design on its head, going to extraordinary lengths to redesign, re-engineer or relocate components to achieve their goal of a car that is less than three metres long, yet has four seats inside with few compromises in space, comfort or driving fun.

The result is what the brand sees as a 'landmark solution'. It's certainly one that will have a long term influence on Toyota's future vehicle development. Their marketing people call the iQ 'the ultimate expression of refined, yet environmentally efficient urban mobility'. If you're tempted to dismiss that as advertising hyperbole, then this car is worth checking out. Not only does it have the power to surprise but the power to shock. If you thought that all small cars were the same, then think again.