The funds will be to develop new products and expand production by an extra 100,000 units in China.
Some 1.3bn euros of the investment will be used to raise output capacity in both Nanjing and Chengdu by 50,000 units to 350,000 each over two years.
Meanwhile, VW is also exploring the possibility of building cars in Malaysia with local automaker Proton
'Demand growing'
From 2012 Nanjing would also build three new models in addition to the Jetta and in Chengdu two new models on top of the Santana Vista.
The German carmaker, which sees China as its most important overseas market, also builds cars in Shanghai and in the northern Chinese city of Changchun.
"China is one of Volkswagen's most important markets worldwide," chief executive Martin Winterkorn said.
"Demand for our products is growing so fast that our capacity is no longer sufficient."