Toyota Prius NHW20 model vehicles produced in Japan from July 2003 to November 2005 are being recalled.
The recall affects 2,596 Australian cars and 990,000 internationally.
Toyota says on some vehicles, under certain conditions, the steering intermediate shaft may become loose or develop a crack.
There have been no reported incidents of this condition in Australia.
The recall also affects some Corolla and Avensis models that are not available in Australia.
"Owners of an affected vehicle will most likely become aware of a problem with the steering as a result of increased noise such as a rattle or a `knocking' sound," Toyota said in a statement.
"In the worst case, if the vehicle continues to be operated under these conditions, the steering connection may separate or fracture, which could result in loss of steering."
Owners of affected vehicles will be contacted by letter in early June requesting them to contact their nearest Toyota dealer to arrange for the problem to be fixed.
This was a free service and would take about one hour, Toyota said.