The investment, said to be worth hundreds of millions of pounds, would safeguard about 1,000 factory jobs.
The future of the plant had been in doubt after Vauxhall's parent company, Stellantis, scrapped plans to build a new Astra model there.
Nissan this week said it will make new electric cars at its Sunderland plant.
Stellantis has been discussing options for the site with the UK government for several months, and is known to have been seeking financial support for its plans.
Sales of vans have been booming during the pandemic, as a result of growing home delivery sales.
Making vans may not be particularly glamorous, but right now it makes a lot of sense.
While car sales have been badly affected by the pandemic, demand for smaller commercial vehicles has been soaring, due to the home delivery boom. Fleet operators are increasingly turning to low-emission options because of the tax advantages they provide.
For Carlos Tavares, the pragmatic and outspoken CEO of Stellantis, it offers a useful compromise. He has been scathing about the UK government's plans to outlaw the sale of new petrol and diesel cars from 2030 - accusing them of destroying his company's business model in the UK.
Now there is a new business model - and with Mr Tavares having previously made it clear that future production in the UK would depend on what support the government could offer, it's likely help from the taxpayer will be part of it.
Stellantis is the world's fifth-largest car maker and also owns Peugeot, Fiat and Chrysler.
The push into electric vehicle manufacturing has grown since the UK and other European countries announced a ban on the sale of new petrol and diesel cars as of 2030.
Nissan on Thursday announced a major expansion of electric vehicle production at its car plant in Sunderland which will create 1,650 new jobs.
The Japanese carmaker will build its new-generation all-electric model at the site as part of a £1bn investment that will also support thousands of jobs in the supply chain.
And Nissan's partner, Envision AESC, will build an electric battery plant.