The US Environmental Protection Agency (EPA) said the Volkswagen had been fitting diesel vehicles in the US with software that turns on full pollution controls only when the car is undergoing official emissions testing.
As a result, the cars emit greater-than-allowed quantities of pollution linked to smog and various health problems.
Volkswagen (VW) chief executive Martin Winterkorn issued an apology and said the group had ordered an external investigation into the matter, adding that it took the EPA findings "very seriously."
The alleged violations affect nearly half a million vehicles and could result in fines totalling as much as $18 billion.