In a Federal Court judgment handed down on Thursday, Justice Michael Lee found 264,170 drivers who bought some of the brand's top-selling cars were eligible for a payout.
The class action alleged Hilux, Fortuner and Prado vehicles sold between October 2015 and April 2020 had defective diesel particulate filter systems, leaving owners out of pocket.
The defect caused the vehicles to spill foul-smelling white smoke and decreased fuel efficiency.
It also meant owners had to fork out for an excessive number of inspections, services and repairs, and in some cases, caused a loss of income when drivers could not use their cars or had to take time off to remedy the defect.
Justice Lee found each vehicle was worth 17.5 per cent less than what the average customer paid, and customers were entitled to be reimbursed that difference.
For the lead applicant of the class action, Ken Williams, that is $7474.59.
Mr Williams also persuaded the judge to grant him $4725 in damages for lost income, and $992 in excess tax.
All up, he is entitled to more than $13,000.
In a statement, Mr Williams said he hoped the decision provided comfort to people had to deal with the disappointment, inconvenience and extra cost of owning the vehicles.
"I am thrilled with today's judgment, particularly that the court has found that hundreds of thousands of ordinary Australian consumers who bought these vehicles are entitled to be awarded damages for the losses they suffered as a result," he said.
If all eligible customers claim their payouts, the bill for Toyota could exceed $2 billion.
However, at the trial, Toyota had argued it had done its best to rectify the issue.
"(Toyota) asserts it made it known to group members that they were able to have the defect repaired at no cost to them and group members who have not taken up that offer have behaved unreasonably such that they should not be compensated," Justice Lee noted in the judgment.
Since the class action began, Toyota says it has also offered refunds and replacement vehicles to hundreds of consumers.
But Justice Lee concluded the company had been misleading in continuing to market the vehicles as being of acceptable quality after learning of the defect.
"TMCA also admits that it engaged in the omissions conduct, including failing to disclose the core defect and defect consequences to prospective purchasers."
In a statement, a Toyota spokeswoman said the company was reviewing the court's judgment.
"At every step, we believe that we have implemented customer-focused and technically grounded remedies to resolve customers' concerns," she said.
"Toyota will carefully consider the initial trial judgment before making any further comment."
