The Toyota Prius has usually be a bit of an acquired taste. It’s stood alone to a degree, suitable for those who really care about the environment, or for those who want to advertise that they care. However, the fourth generation of the hybrid has moved the vehicle forward a long way. How far? We test it against two frugal hatchbacks to see if it can finally mix it with mainstream rivals.

The two cars we’ve chosen have, respectively, a diesel engine and a three-cylinder turbo petrol engine, so they’re aimed more at economy than performance, much like the Toyota. The Mazda 3 1.5 Skyactiv-D SE-L Nav represents the smaller diesel engine, while the VW Golf 1.0 TSI Match Bluemotion Edition shows what a small turbo petrol engine can offer.

The Toyota Prius 1.8 VVT-i Active of course has a 1.8-litre petrol engine as well as a hybrid electrical power system. The latest version has a more economical engine but perhaps the biggest change is the determined effort to improve the driving dynamics, which have been fairly pedestrian thus far.

One outcome is a car that handles much better than previous models. It’s still not exactly an involving ride, but the handling is sharper, more assured and has clearly had a lot of effort put in. The ride is similarly good, particularly around town. And it’s around town where the hybrid power system really scores.

It’s quiet, efficient and switches effortlessly between petrol and electric power, so long as you’re being gentle. Put your foot down more as you head out of town and the CVT auto box does that elastic band thing of making the revs shoot up while the engine sorts itself out, but again it’s better than it was.

The Mazda 3 scores well for body control and outright traction, but this comes at the expense of a ride which is fairly rowdy and fidgety. It falls behind the Toyota here, and falls further on engine performance. It’s about the same as the Toyota generally but there’s some rough diesel clatter at idle and it never really goes away. It needs revving to get it going and then, when you have achieved speed, you notice a slight lack of stability.

The Volkswagen Golf is the smallest car here in terms of engine size, but it definitely punches above its weight. There’s a bit of a not unpleasant growl from the three-cylinder engine, but it remains remarkably unobtrusive throughout. This is excellent given that the little Golf is actually quicker than the other two, and is the only one to get to 60mph in under 10sec. There’s a decent spread of power and, once up to speed, you gain a decent handling package with a good engine performance that means the Golf is the most enjoyable of the three to actually drive.

The Toyota fights back with a unique interior, with some nifty black and white touches as well as a good selection of screens to browse the high levels of data available. It feels well made as well, and there’s plenty of room for adults fore and aft, although those in the rear might feel a bit cramped for headroom due to that falling tail.

The Mazda is not bad but there are some cheap-feeling materials and finishes around the cabin. The seats aren’t that comfortable but it generally does feel well made.

The Golf feels the more accomplished of the three, with an understated elegance to the cabin. It feels robust, using well-made components, and is actually the lightest cabin to be in, particularly in the rear. The boot is a good size and it’s the only car here to have a ski hatch. It scores big for practicality as well as quality compared to the other two.

But if you’re a company car driver, the Toyota Prius can be the cheapest car here. It’s cheaper for BIK taxes thanks to its low CO2 output, plus even if you’re buying it for yourself you’re going to like the fuel consumption, residual values and servicing costs compared to the other two.

Toyota may claim 94.1mpg but in our Real World MPG tests it still managed a highly credible 62.5mpg. That compares to 53.6mpg in the Mazda and 51.8mpg in the Golf. All three are well equipped, but it would be nice if the Golf could have automatic emergency braking (AEB) as standard, as it is on several other Golf variants.

The Toyota Prius certainly has come a long way. It can now mix it with the mainstream hatches and hold its head up. It makes an excellent case for itself, whether on driving ability, emissions, costs and much else. It certainly beats the Mazda 3, which isn’t bad but it doesn’t shine against the competition here. Simply putting a smallish diesel engine in a hatch is no longer any sort of guarantee of success, even in fuel consumption terms.

Despite the hybrid system in the Prius, the winner here is actually the small petrol engine. The VW Golf is just such an all-round accomplished star. It’s refined, it handles and rides well, and it’s simply the best car here to drive. It takes the top step, but the Toyota Prius has never been closer to it.