The recall involves cars built between June 2005 and April 2007 and is part of a world-wide recall of 1.3 million cars.
The carmaker says in severe front-end collisions, the seat belt is at risk of causing a foam pad in the car to ignite.
Toyota Australia spokesman, Glenn Campbell, said three cars globally, including one in Australia, had experienced the problem.
“There is a possibility that a noise-absorbent insulation could heat up when the seatbelt-tensioner is activated in a crash,” he said.
“In extreme cases, this could lead to a post-crash fire.”
Campbell said Toyota was contacting customers by mail to have their cars checked and have the faulty insulation removed.
“The repair takes less than an hour and will be done at no cost to customers,” he said.
The insulation was originally designed to reduce noise but subsequent testing by Toyota has found it does not increase noise levels when removed.