The south-western city of Stuttgart is home to Daimler - the makers of Mercedes - and Porsche.
Stuttgart's mayor urged residents to use public transport or electric taxis, or to form carpools.
Stuttgart is the first city in Germany to issue an official alarm over levels of polluting particles in the air.
On Monday, levels of harmful PM10 particles in Stuttgart reached 89 micrograms per cubic meter - nearly double the safe maximum of 50 micrograms, according to the regional environment agency for the state of Baden-Wuerttemberg.
In a statement (in German), the city website urged residents to use public transport, electric taxis, or form carpools.
Some 500,000 car journeys are made each day in Stuttgart - the home of the famous Daimler and Porsche brands.
In a statement (in German), the city council also asked employers to let staff work flexible hours or even from home. It advised against using wood-burning stoves which could increase pollution levels.
"The aim is to improve the quality of life in Stuttgart," the statement said.
They said it was because a layer of warm air higher up would prevent the particle-rich colder air near the ground from rising out of the city.
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