The decision -- a boon for President Donald Trump's drive to bring investment and jobs to the country -- was made based on the state's efficient logistics network and concentration of auto parts makers, among other factors.
The two automakers are aiming to start operations at the plant in 2021. It will be Toyota's eighth such facility in North America and the second for Mazda.
The companies announced they would build a new plant at an undetermined location in August last year under a capital tie-up and nearly 20 U.S. states sought to land the facility. By Wednesday, the makers had obtained the necessary permissions from the state of Alabama.
The joint plant forms part of a plan unveiled by Toyota in January 2017 to invest $10 billion in the U.S. over the next five years.
Alabama is already home to a Toyota engine plant and offers easy access to a major south-north highway. Another determining factor was the ease of procuring components such as automotive steel plates due to a concentration of material industries in the area.
While other automakers like Honda Motor have plants in Alabama, for Toyota, the state is a complete "blank area," said a company official.
Mazda has a plant in Mexico, a country that also hosts the manufacturing bases of related parts makers, which facilitates parts supplies to the southern U.S.
Texas, which shares a border with Mexico, had also been touted as a potential site. But the automakers settled on Alabama following negotiations with local government.
The new plant will employ some 4,000 people, with Toyota planning to produce Corolla compact cars and Mazda small- to medium-sized sport utility vehicles.
There will be two production lines, which are expected to have an annual capacity of some 300,000 units. The automakers will consider a plan to operate part of the lines under a mixed production system based on model types, rather than dedicating a line exclusively to each automaker.
Amid tightening environmental regulations in the U.S., the likely challenge will be to create new added value, such as locally producing electric cars and replacing production models to better reflect demand.