The service, which is free of charge, sends a security code to your mobile phone, which you must use along with your username and password to log in to your account.
Alternatively, PayPal is offering a security token for users that don't want to use their mobile phone. The £3 device creates a new security code every 30 seconds. Once this code is entered, along with a username and password, users can gain access to their account. The code then expires and no-one else can use it.
"VIP has been working for about one and a half years in other countries, with eBay, AOL and PayPal signed up in the US, so it's starting to gain critical mass," said Mike Davies, director of identity and authentication services at VeriSign.
"It gives consumers an extra layer of protection when they interact online with firms they have an account-based relationship with."
"PayPal has always taken online security very seriously and is famous for not sharing customers' financial information. As a result, successful fraud attacks on PayPal accounts are very rare. But we know that some people want extra reassurance, and that's what the PayPal Security Key will offer," added Garreth Griffith, head of risk management at PayPal UK.
"It's like a combination lock for your account - designed to let you in and keep others out, with the extra safeguard that the combination always changes."
Davies revealed he expected more UK-based companies to sign up to the service in the coming months.
Visit PayPal's website to set-up the new service.
See also: eBay buys PayPal competitor for $1bn