The 875cc two-cylinder engine delivers 95g/km of CO2 emissions – the lowest out of any petrol car and enough to allow the 500 to qualify for free road tax and exemption from the London congestion charge.
Fiat says the engine is 23 per cent more powerful than its best-selling 1.2-litre petrol for the Fiat 500, but offers 15 per cent less CO2 emissions.
The breakthrough in technology is another impressive move from the Italian manufacturer, which had previously won Engine of the Year for its 1.4-litre MultiAir petrol engine.
The TwinAir engine builds on this by reducing size and weight while a turbocharger delivers 85bhp. Fiat will offer a manual and automatic gearbox with the Fiat 500 TwinAir and fuel consumption has been measured at 68.9 and 70.9mpg respectively.
Start&Stop technology comes as standard to improve fuel consumption and an ECO driving mode as well as a Normal mode to further boost its eco-credentials.
Top speed is 108mph and the Fiat 500 TwinAir can hit 62mph from standing in 11 seconds for the TwinAir model, the fourth engine choice in the growing Fiat 500 range.
The retro city car also boasts a 1.3-litre MultiKet turbodiesel and two petrol engines; the 1.2-litre and 1.4-litre units.
The TwinAir will also be available in the myriad of special edition Fiat 500s such as the Blackjack and 500by DIESEL, Fiat has announced.
The standard model will be instantly recognisable in some cases, with a new sky blue colour added to the range to celebrate the launch of the innovative technology.
Making its UK debut this month, the TwinAir technology is a first for Fiat and will be the only two-cylinder engine available on a production car.