Ford said in a statement it will maintain production of the current model of the Fiesta as well as future versions of the car in Cologne rather than transfer it to a lower-wage country.
In addition, the car maker extended for another five years a job guarantee for the site's 24,000-strong workforce.
In return, it was agreed with unions that costs would be cut by $400 million (295 million euros) between 2017 and 2021 via more flexible working hours and cuts in bonuses.
The announcement will come as a relief for workers who had feared a possible closure of the plant following the decision to shut down plants in Belgium and Britain in the face of Ford's 1.6-billion-euro loss in Europe.