Last week at the Geneva Motor Show, Bentley C.E.O. Frank-Josef Paefgen promised that by 2012, his storied marque would cut its carbon dioxide emissions by more than half.

On average, a Bentley emits more than 400 grams of CO₂ for each kilometer it drives—four times what the Toyota Prius puts out—and the Environmental Defense Fund places all Bentleys in the bottom third of its green rating for cars. Paefgen promised to achieve this remarkable drop by reducing weight, introducing new engines, and making all new cars biofuel compatible.

Ten years ago, nobody would have cared.

Not only was the world less environmentally tuned in, but Bentley was all but irrelevant. It had spent a number of decades as the neglected stepsister of glamorous Rolls-Royce. Its upright, four-door sedans were considered stale. Sales were beyond low—in 2003, exactly 995 Bentleys were sold. Globally.

But in 2007, that number was 10 times higher. Top executives (Oracle C.E.O. Larry Ellison) and rap stars (Nelly) now drive Bentley’s fast, road-hugging Continental. And with prices starting at $175,000, the cars even manage to be perceived as bargains.

Bentley achieved this comeback by using a classic business strategy: Find an unfilled niche in the market—in this case, cars priced between $150,000 and $250,000—and fill it. But the company didn’t focus just on price. It also overhauled its image, designing cars that stayed true to the best of Bentley heritage—more sexy than stuffy—and packing them with performance and advanced technology, as well as the traditional hand-sewn leather seats and burled-wood trim.

Early in its history, Bentley was known for making big, fast, sporty cars—with their huge engines, Bentleys won the 24 Hours of LeMans race five times in the company’s first dozen years. Ettore Bugatti, whose elegant, delicate cars were the antithesis of Bentleys, called them “the world’s fastest lorries.”

But the Depression pushed the automaker into bankruptcy and into the arms of Rolls-Royce. With occasional exceptions, Bentleys became little more than Rolls-Royces with winged logos attached—and at the top price points, who wants to own a clone? By 1984, Rolls was selling nine of its cars for each Bentley.

Bentley’s 1998 sale would prove the best thing to happen to it in years. Vickers, the aircraft-component maker that owned both brands, decided it could no longer manufacture cars and sold Rolls-Royce and Bentley Motors—complete with cars and factory—to Volkswagen Group. But in a last-minute quirk, the Rolls-Royce jet-engine company licensed its brand to BMW. At the time, most analysts believed that BMW got the more desirable deal: the more prestigious, better-selling brand and the opportunity to create a new factory to build it.

The industry eagerly awaited the launch of new cars from each of the marques. For the first time in 70 years, they would share not a single component. But would there be room for both contenders in the world of $250,000-plus cars? Would the cars be perceived as worth that price if they were sharing parts with less lofty vehicles?

Bentley unveiled its new Continental GT concept at the 2002 Paris Motor Show. Unlike Bentley’s existing Arnage—a twin of Rolls-Royce’s high-riding Silver Seraph—it was low and curvaceous, a modern interpretation of the brand’s glamorous 1950s Continental coupe, powered by a twin-turbo W-12 engine that put out more than 500 horsepower.

“We didn’t announce a price for it,” recalls Christophe Georges, Bentley’s chief operating officer, who was then sales director. “Everyone assumed it was a new supercar and would be much more expensive.”

Ferdinand Piech, Volkswagen’s C.E.O., had a different approach in mind. At the time, the highest ends of the Audi, BMW, Jaguar, Mercedes-Benz, and Porsche lines maxed out between $100,000 and $150,000, with a total sales volume of roughly 100,000 cars a year. Ferraris, Maybachs, and the brand-new Rolls-Royce Phantom started well north of $200,000—with total annual sales of just 3,500. In between was absolutely nothing.

The Continental GT went into production in 2003 at a price of about $150,000. (For 2008, it’s risen to $175,990.) It fit neatly below the Arnage sedan and Azure convertible, which are now priced at $220,000 to $330,000, respectively, racking up the same few hundred sales a year they did a decade ago.

Rolls-Royce aimed at this same rarefied segment in 2002, taking the brand further upmarket with the Phantom. “BMW has been left trailing,” says British automotive-industry analyst Dave Leggett of the website Just-Auto. A new Phantom starts at $335,000 and competes with Daimler’s new Maybach superluxury brand. It has taken Rolls several years to return to historic sales levels; last year, it had its best year since 1990, selling 1,010 Phantoms.

Meanwhile, the Continental, known as the Baby Bentley, “grew the brand by making it fashionable and giving it appeal to a new, younger generation,” Leggett says. It took just five years for Bentley’s sales to soar to 10,014 a year.

The Continental GT coupe has spawned three variants: the GTC convertible, the four-door Flying Spur sedan, and the even faster and more powerful GT Speed. All of them share subtle aesthetic touches, says design director Dirk van Braeckel. Individual headlights and tail lamps, for example, are recessed into the car’s metal panels, rather than ending flush at the edge of the hood or trunk lid.

Many Continental buyers are self-made, says van Braeckel, unlike those who might be more attracted to a Rolls-Royce. They also tend to be on the younger side—in their forties rather than in their fifties and sixties, and one in five is a woman. Most important, 84 percent of them have never owned a Bentley.

One indication of just how profoundly Bentley’s growth has changed the game, spy photos of a new, smaller Rolls-Royce scheduled to be launched in two or three years recently appeared on auto websites. Its target market seems identical to to the one courted by Bentley’s Continental. The quiet stepsister has become the belle of the ball.