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"The focus is on low-cost technology," Toyota president Katsuaki Watanabe told Britain's Financial Times newspaper in an interview published on Monday.
He declined to set a price for a low-cost car but said it would be "at least" less than the Logan.
Renault has started production of the Logan, which will cost from €5 000 ($6 200) on up, touted as a budget model for consumers in emerging economies such as China and Russia that conforms to European standards.
Watanabe said that Toyota could slash the price by targetting costs throughout production.
"Everything from design to production methods will be radically changed and we are thinking of a really ultra-low-cost way of designing, using ultra-low-cost materials, even developing new materials if necessary," he said.
The plan would create a new challenge to struggling US automakers.
Toyota is set this year to overtake General Motors as the world's largest automaker.
The Japanese automaker has cashed in by pioneering environmentally friendly hybrid cars and has also seen success with its luxury Lexus line.
