Introduced in 2000, the Highlander crossover (factory index XU20) was built on the Toyota Camry sedan platform. Unlike the body-on-frame 4Runner, the Highlander featured a unibody construction and four-wheel independent suspension, giving it car-like handling and ride comfort along with a high seating position and spacious interior. In Japan and Australia, the model was sold as the Kluger. Initially, it was offered with two gasoline engines: a 2.4-liter four-cylinder (155 hp) and a 3.0-liter V6 (220 hp). Both front-wheel and full-time all-wheel drive were available.

In 2004, the Highlander received a mid-cycle update. The 3.0L engine was replaced by a more powerful 3.3-liter V6 (230 hp), paired with a new 5-speed automatic transmission. An optional third-row seat was also introduced. A major breakthrough came in 2005 with the debut of the Highlander Hybrid. Equipped with a 3.3-liter V6 and electric motors (Hybrid Synergy Drive) producing a combined 268 hp, it became the world's first seven-seat hybrid vehicle. The first generation successfully set the standard for the family crossover segment.