Japan’s Toyota, which had topped sales for the past four years, sold 10.175 million vehicles globally in 2016.
That fell short of the 10.31 million sales which VW reported last week.
The milestone comes despite VW’s scandal over emissions tests cheating, which sparked a global backlash and multiple lawsuits.
Volkswagen, which makes the Audi, Porsche and Skoda brands, saw a 3.8% increase in sales buoyed by demand in China.
And it has been making inroads in other markets too. In Sweden for example, the Volkswagen Golf was the most popular new car in 2016 – the first time in more than half a century that a Volvo hasn’t topped the country’s sales.
Toyota’s sales grew by 0.2% – though it appears to have suffered from a slowdown in the US car industry.
Toyota fell from the top spot for the first time since 2011, when manufacturers’ supply chains were disrupted by a powerful earthquake and resulting tsunami in north-eastern Japan.