"Global markets are now flooded with cheaper Chinese electric cars. And their price is kept artificially low by huge state subsidies," von der Leyen said, during a speech at the European Parliament in Strasbourg.
This could lead the European Union to impose duties on those cars that it believes are unfairly sold at a lower price, thereby undercutting European competitors.
"Europe is open for competition but not for a race to the bottom," the European Commission president said.
France reportedly pushed von der Leyen to launch the investigation, but there are growing concerns across Europe about how much the continent relies on Chinese products.
European car makers hailed the investigation as a "positive signal".
"The European Commission is recognising the increasingly asymmetric situation our industry is faced with, and is giving urgent consideration to distorted competition in our sector," said Sigrid de Vries, director general of the European Automobile Manufacturers Association.
The EU's internal market chief Thierry Breton last week warned about a trend emerging where Europe was "being relegated to net imports of electric vehicles or solar panels".
China could overtake Japan to become the world's largest car manufacturer this year, according to some experts.
France is particularly concerned that Europe will fall behind if it is not more assertive when confronted with China's actions that are more protectionist.
Paris has announced measures that would provide subsidies for new electric cars based on the manufacturers' emissions output. This would be more difficult for Chinese cars since their production often relies on coal-powered electricity.
Von der Leyen has called on the EU to define its own approach to Beijing, although some of Europe's larger powers want to be cautious to avoid severing business ties.
Despite her strong comments, von der Leyen said it was "vital" for Europe to maintain "communication and dialogue with China".
"Because there are also topics, where we can and have to cooperate. De-risk, not decouple -- this will be my approach with the Chinese leadership at the EU-China Summit later this year," she added.
The EU's trade commissioner Valdis Dombrovskis will head to China next week, he said in a social media post, "to engage on trade and economic opportunities/challenges".
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