All transport on the island will be electric and residents will get their power from renewable sources.
The company and the Greek government signed a memorandum of understanding to proceed with the plan, Volkswagen reported on its website.
The project is to be undertaken over six years and involves radical changes to the way people move around the island, with the focus on mass transit. A total of 1,000 electric vehicles will replace the 1,500 internal combustion engine cars now in use. Energy is to be produced from sources like wind and solar power.
Volkswagen has already started producing electric vehicles and intends to present new models in the next few years. The company is also to provide the infrastructure required for a fleet of electric vehicles, including the manufacture and installation of 230 charging stations produced by Elli, a Volkswagen brand.
The government says the project is aimed at determining whether residents and tourists are prepared to make the transition from personal cars to ride-sharing with electric vehicles.
Astypalea, located in the southern part of the Aegean Sea, is about 100 sq. km. in size and a population of 1,300. It hosts about 70,000 tourists every year.
At the moment, two buses on the island and virtually electricity is produced from fossil fuels.