Work will start on a 120,000 sq ft factory in September after the firm secured a £1.8 million grant from the Government’s Regional Growth Fund.
The jobs will be created over the next five years after the Chicago-based firm opted to increase production in Birmingham rather than in America.
HydraForce managing director Peter Macdonald said: "We started in Birmingham and we have been here for 26 years because our employees are here, and obviously we want to maintain our employee base.
"As part of the consideration there was a review about whether this is the right place, and whether it might be better to do it in the US or China, but this decision was supported by the business and the Regional Growth Fund enhanced that."
HydraForce, which makes hydraulic valves, will leave its current European headquarters in Aston for the new base next August.
Mr Macdonald said job numbers at the company, which last year turned over around £49 million, will almost double by 2018.
He said the expansion followed an analysis of the market which found potential demand for new products if the firm had more capacity. In all, 80 per cent of its output is exported.
HydraForce's new building will expand its manufacturing facility by 70,000 sq ft after agreeing a deal with landowner The Homes and Communities Agency. It will also see investment in machinery, research and laboratory facilities, and support.
The move will see the firm become the inaugural tenant of the Advanced Manufacturing Hub, which is a key part of plans for growth in the city.
Chris Tolley, head of HR at HydraForce, said: "The challenge for us is we are not a very well-known brand compared to some other engineering businesses but when people come in and see the business and what it is like they are very keen to stay here.
"But with some support and marketing, we are very confident we will find the right people in the Birmingham area. We are also looking to develop talent and create a graduate scheme."
HydraForce's decision to base its growing operation in the area will also create hundreds more jobs in the area's manufacturing supply chain.
Councillor Tahir Ali, Birmingham City Council’s cabinet member for development, transportation and the economy, said: “This decision is testament to the strength of the city’s advanced manufacturing sector and shows that our approach of targeting key growth sectors at particular sites continues to deliver new jobs and investment.
“We will be working closely with the company to ensure that the 200 new job opportunities are targeted at local people.”