A panel of European automobile journalists chose the Peugeot 308 hatchback over a handful of other finalists including Tesla's Model S, a luxury American electric car, on the eve of the opening of the Geneva International Motor Show.
"We talked a lot about Peugeot during these last months, we talked a lot about many many things but not about cars," said Maxime Picat, head of the Peugeot brand at PSA Peugeot Citroen.
"I'm really pleased to speak about cars and the wonderful new 308."
The cash-starved French automaker last month won a new lease of life by handing over part control to the French state and China's state-owned car company Dongfeng.
Peugeot, Europe's second-largest manufacturer after Volkswagen, was weakened considerably by its heavy dependence on the slumping European auto market and hopes its tie-up with Dongfeng will lead to higher sales in China, the world's top car market.
The Car of the Year award should also lead to an acceleration in sales for the 308, according to a car analyst.
"This could lead to an increase in sales of 20 percent," said Bertrand Rakoto at D3 Intelligence.
Peugeot has already received 55,000 orders for the model launched at the end of last year.