The Palio badge originated on the European-market Mark II Fiat 127, of 1977, where it was a trim designation rather than an actual model.

The 127 Palio featured alloy wheels, a more luxurious interior, and a metallic paint finish as found on the 127 Sport.

The entire structure was significantly stronger to be suitable on the rougher roads found in some of the markets for which it was intended.

The suspension layout, as on the Uno, consisted of MacPherson struts at the front and a torsion beam at the rear, even though the Weekend (station wagon) version had the fully independent trailing arms rear end from the Fiat Punto instead.

In India, assembly was at Pune in the new Fiat-Tata Motors factory and in South Africa by Nissan[2] together the pickup version called Fiat Strada.

[3] A Fiat Albea, the sedan version of the Palio, was tested in Russia according to the Euro NCAP latest standard (offset frontal crash at 64 km/h).

The tested vehicle was equipped with standard driver and passenger airbags and regular seatbelts.

Fiat India manufactured the 2004 Palio, with 2001-version interiors, at the Ranjangaon plant along with the Grande Punto and Linea.

The design of the body was inspired by the new version of the Grande Punto, which was launched in Brazil in the first quarter of 2008.

This fourth facelift included a new front, rear, and side designs, but it kept the original chassis from the 1996 model, being marketed as the New Palio.

The Palio Adventure introduced the new limited slip differential and new suspension for off-road with front-wheel drive.

In 2011, after buying the Brazilian factory and the project of the Tritec engine, Fiat modified it and launched its new line of 4 cylinder engines (E-Torq) in South America, being the 1.6 16V (114 HP) equipping all the family, and the 1.75 (sold as 1.8, 130 HP) equipping the Strada and Palio Weekend.

An all-new generation of Palio was revealed in October 2011, at the annual Fiat dealers' meeting in Mykonos, Greece.

[9]In 2007, Fiat joined Brazilian utility companies Cemig and Itaipu to develop new electric vehicles for Brazil.

[10] After three years in development, the Palio Weekend entered production at Fiat's Foz do Iguazu factory in Brazil.

The first generation design of Fiat Palio, that had very few structural changes from 1997, has been rated as highly unsafe by Latin NCAP in its most basic Latin American market configuration with no airbags in 2010, scoring only one star for adult occupants and two stars for children.