Chrysler has moved into the small car market – Andy Russell drives the cute and curvy Ypsilon.

If you are one of those people who think that all new cars look the same, as though turned out of car-shaped jelly moulds, then you clearly haven't seen Chrysler's new entry into the supermini sector.

Although you might have seen the Ypsilon – pronounce the 'Y' as an 'I' – if you have been on the Continent recently because in mainland Europe it is badged as a Lancia.

Lancia is long gone in the UK, where it didn't have a great reputation, having been finally killed off by the ironically-named Dedra. But now Chrysler Jeep has linked up with Fiat Group it saw the opportunity to expand the brand by moving into the supermini and mid-size markets by rebadging the Ypsilon and Delta respectively.

The Ypsilon is a very distinctive little car with looks you either love or hate. Everytime I looked at it I had a smile almost as big as the car's 'grinning' front grille and the back end is attractive with the rear light clusters flowing into the bulbous haunches.

But if the Ypsilon is going to catch on in the UK it's going to have to have substance as well as style. Strip away those smart clothes and the Ypsilon shares its running gear with the iconic Fiat 500 – a big boost for the Italian car-maker's small car range.

That means a decent range of small, economical engines – 69hp 1.2-litre and 85hp 875cc twin-cylinder turbo petrol and a 95hp 1.3-litre turbo diesel – all with fuel-saving, emission-cutting automatic stop-start.

The little twin-cylinder engine – 2011's international engine of the year – is surprisingly peppy but then 85hp is quite an output. With just the two cylinders its lumpiness is noticeable on tickover and at low revs but it smoothes out as it picks up and, in the lower gears, certainly spins freely to get the peak performance from it, accompanied by a rorty, sporty note.

For a small engine it's also very flexible, trickling along at 1,500rpm and you can hardly hear the engine. This is when the TwinAir's economy comes to the fore and I found running around regularly returned 55-60mpg, helped by the standard stop-start system – short of the official figures but good in real-world driving. It's also capable of longer runs, cruising at 70mph, but with the engine working hard to keep up with traffic fuel consumption dropped to just under 50mpg.

The ride is a bit lumpy-bumpy, especially at low speed, with roadwork scars and potholes sending a thump through the firm suspension. The handling is competent but there's a fair degree of body lean in fast corners and little feel to the light steering. That said, it comes into its own in urban driving, where the Ypsilon is in its element darting through gaps in the traffic and nipping into tight parking spaces.

The Ypsilon is as eye-catching inside as it is outside with the fascia dominated by the high-rise central instrument cluster and simple switchgear and controls for the audio system and heating and ventilation, leaving a clear section in front of the driver. But it is clearly set up for left-hand drive with the speedo on the nearside – sit in the front passenger seat and it makes a lot more sense.

It's quite well finished, although the lid of the small glovebox on my test car stood proud, but the hard plastics feel cheap and took the shine off the piano black inserts.

The driving position is typically Italian and with no reach adjustment for the steering wheel I had the seat closer to the wheel than my legs would have liked.

The first thing that strikes you in the back is how much legroom there is, the second thing is how short the seat cushions are, which accounts for all that legroom, and the third thing is that they could do with more under-thigh support.

The deep boot is reasonably sized for a supermini and pretty practical while rear seat backs fold flat 60/40 but stand well proud of the boot floor so there is a big step up.

Available in S, SE and Limited trims, the entry model, offered only with the 1.2 petrol engine, includes electric front windows and power door mirrors, 50/50 split rear seats, MP3-compatible radio/CD, height-adjustable steering and driver's seat, four airbags, remote central locking and trip computer. SE adds air-conditioning, 15in alloy wheels, electric door mirrors, leather-trimmed steering wheel, upgraded fabric upholstery and 60/40 split rear seats. Limited gains electric rear windows, leather seats and front fog lights.

If you want a supermini with Italian flair that is styled to stand out from the crowd the Ypsilon may prove tempting but it's not cheap and there are rivals, including the cute Fiat 500 on which it is based, that are equally attractive and serious competition when it comes to looks and pricing .