Thirty of the fuel-cell vehicles, which have a top speed of 50mph and can go 200 miles on one tank of hydrogen, will be loaned to motorists in Leicester from spring 2012.
The two-seat car has been developed by Riversimple, a small British manufacturer based in Ludlow, Shropshire. The prototype was built at Silverstone, Northamptonshire.
If the trials are successful, the company will consider building a factory in Leicester which would employ 250 people and manufacture 5,000 of the cars each year.
The cars would not be sold but instead leased out to drivers for about 200 a month plus mileage.
So far, the company has spent about 3 million developing the technology for the car, which goes from 0 to 30mph in 5.5 seconds and does the petrol- equivalent of 300 miles per gallon.
Riversimple has signed a deal with Leicester City Council for a 12-month pilot which will see 30 of the cars rented out to private customers, businesses, car-share schemes and local government officials in the city.
Part of the project involves identifying suitable places for hydrogen pumps where drivers can refuel.
Hugo Spowers, the founder of Riversimple, said: "The age of fossil-fuelled cars may not be over yet but it is surely dying.
"Contrary to what we usually hear, sustainable, near pollution-free transport is possible, here and now, using existing technology."
The company has received Government backing. Chris Huhne, the Energy and Climate Change Secretary, said: "We need to harness cutting-edge technology to reduce our dependence on fossil fuels if we are to tackle climate change.
"Nowhere is this more important than with passenger cars, which are responsible for almost 60 per cent of domestic transport emissions.
"A radical transformation of our transport network is needed in the next 40 years and this is another great example of British innovation developing low– carbon solutions to bring that about."
The car, which weighs only 350kg, can recapture its own motion energy when braking, providing 80 per cent of the power needed for acceleration.
The only waste produced by the car is a few drops of water.
As part of its plans to create a sustainable vehicle for use in cities, Riversimple will lease the cars rather than sell them. Drivers will pay approximately 200 a month and then 15p a mile as part of a business model similar to a mobile phone contract.
The project is being backed by relatives of Ernst Piech, whose family founded Porche. The company is now looking for new investors to help finance this next phase.
Riversimple hopes that by 2015 it will have manufactured a four-seat version of the car which can be used safely on motorways and for long journeys. By 2020, it plans to have tens of thousands of cars on British roads.
Councillor Abdul Osman, in charge of regeneration and transport at Leicester council, said: "This hydrogen fuel-cell car is another example of revolutionary technology being used to meet future transport needs."