Honda will invest Can$492 ($372 million) in its Alliston factory north of Toronto, with financial support from the federal government and province of Ontario, Economic Development Minister Navdeep Bains said on Monday.
The governments of Canada and Ontario will each contribute Can$41.8 million over three years.
The investment will enable the facility to assemble new models of the Civic and the CR-V vehicles.
The Japanese automotive group will also construct a new paint shop that will help cut greenhouse gas emissions from the paint process by 44 percent, Honda Canada CEO Jerry Chenkin said.
The improvements will help save 4,000 jobs at Honda's facilities - which assembled 385,000 vehicles last year - and "further anchor Honda's presence in Canada," the government of Canada said in a statement.
The announcement comes as US President-elect Donald Trump is putting pressure on automakers with facilities on US soil to stop relocating production to Mexico, where a number of factories opened following the enactment of the North American Free Trade Agreement (NAFTA).
Signed by Canada, the United States and Mexico, the agreement went into force in 1994.
Trump has so far held off criticizing investments in Canada, where labor costs are similar to those in the United States. Manufacturers with facilities in Canada have also relocated plants to Mexico thanks to NAFTA.
The Republican billionaire, who has vowed to renegotiate NAFTA, is "a potential risk" for the Canadian automotive industry, Ontario Economic Development Minister Brad Duguid said on Monday.
However, he said he is convinced the US president-elect would do nothing to hinder the industry's cross-border supply chain, which links several factories in Ontario to others in Michigan and Ohio, crucial swing states that voted for Trump by small margins.
The three major American automakers committed to investing Can$1.5 billion in their plants in Ontario when they reached collective bargaining agreements with employees last year.