The SUV will be made in Crewe and will go on sale in 2016.
It will create over 1,000 jobs in the UK.
Over the next three years, Bentley will invest more than £800m in its headquarters at Crewe and the development of new models.
British Prime Minister David Cameron, who was present together with Dr Martin Winterkorn, Chairman of the Board of Volkswagen Group, for the announcement at Bentley headquarters in Crewe, said: "This £800m investment and a thousand 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 a thousand jobs, but safeguarding many more, as well as increasing training opportunities for highly skilled apprentices."
Dr Winterkorn 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."