The M3 performance model was introduced in June 2000 with a 2-door coupé body style, followed by the convertible counterpart in April 2001.

[18] In May 1995, the general exterior design of the E46 by Erik Goplen of DesignworksUSA was approved and as a result DesignworksUSA was contracted by BMW to work alongside BMW Group's in-house design team to create the exterior bodywork for the 3 Series range in February 1996.

[19][20][21] The design team put an emphasis on improving aerodynamics and increasing the car's aggressive stance.

[23] Chris Bangle and Wolfgang Reitzle were responsible through 1995 for the production sedan's exterior,[24][25] as evident in the 1997 design patent.

The E46 sedan was unveiled via press release on 11 November 1997 and was launched on the market at the end of April 1998 with customer deliveries.

[31][32] In tune with BMW's core values regarding handling dynamics,[33] the E46 was initially available with a rear-wheel drive layout and a 50/50 weight distribution.

[46] Local assembly of complete knock-down (CKD) kits was used for cars sold in China, Egypt,[47] Indonesia, Malaysia,[48] Mexico,[49] Thailand[50] and Russia.

[52] The body styles of the range are: The shorter three-door hatchback version of the E46 was marketed as the BMW 3 Series Compact.

The exterior styling has several differences to the rest of the E46 3 Series range, notably the distinctive headlights and tail-lights.

[61] Mechanically, the Compact shares many elements with the rest of the E46 range, however the steering rack has a faster ratio.

Weight was reduced by removing equipment and replacing the roof, door panel, and centre console with carbon fibre pieces.

[77][78] Power was delivered to the rear wheels via a race type 6-speed dual clutch sequential transmission with M locking differential.

[81] Suspension was modified over the standard suspension with firmer springs and dampers, larger anti-roll bars, stronger front control arm ball joints, a lower ride height, heavy duty steering rack, and slightly more negative camber.

Style 71, M-Double Spoke Split rim wheels were standard while interior equipment included M short gear shift, aluminum or black "Alu-Tech" trims, silver rings on cluster, door sills with "M Clubsport" letters, and an interior finished in half-leather and half-fabric "M Texture" cloth.

The Spec E46 cars were built to a standard with limited modifications, to create a level playing field and increased competition between drivers.