The second-generation crossover (XU40) debuted at the 2007 Chicago Auto Show. The vehicle grew significantly in dimensions, resulting in a more spacious interior, particularly in the second and third rows. The design became more substantial and muscular. The primary engine was a new 3.5-liter V6 (270 hp) paired with a 5-speed automatic transmission. A 2.7-liter four-cylinder (187 hp) was offered as the base engine in some markets. The Hybrid model was also updated, featuring a powertrain with a combined output of 270 hp.

An interesting interior feature was the 'Center Stow' system: the middle section of the second-row seat could be removed and stowed under the front center console, creating captain's chairs and a pass-through to the third row. In 2010, the Highlander received a major facelift for the 2011 model year, featuring a completely revised front fascia with new headlights, grille, and bumpers. Post-facelift hybrid models were upgraded to a 3.5-liter V6. The vehicle became one of the most popular family SUVs in North America thanks to its comfort and reliability.