The development team built on the general aviation gameplay of Flight Unlimited II, with more detailed physics and terrain, more planes, and a real-time weather system.

Lead designer Peter James described Flight Unlimited III's development as a struggle, thanks to a lack of interest from Electronic Arts and from Looking Glass's management.

Players may control ten aircraft: the Lake Turbo Renegade, Stemme S10, Mooney Bravo, Fokker Dr.I, Beechjet 400A, and five planes first included in Flight Unlimited II.

[2][8] The flight physics were coded by Kevin Wasserman and involve real-time calculations of force vectors, such as those acting against a plane's yaw, pitch, and roll.

[8] The game's terrain texture maps were made with satellite images rendered at four square meters per pixel,[17] the highest resolution used in a flight simulator at that time.

[16] Artist Karen Wolff designed the terrain by combining large topographic maps into a "mosaic", which recreated the elevations and depressions of the Seattle area.

Budget concerns and the storage limitations of the CD-ROM format prevented the team from rendering the entire United States, despite fan demand.

[16] While visiting Looking Glass to cover Flight Unlimited III's development, journalist Dan Linton was impressed by the team management of Tom Sperry, producer Sandra Smith, and vice president of marketing Michael Malizola.

He wrote that they employed "suggestion and encouragement" instead of "demands", and he believed that their work was in large part responsible for the game "setting a new standard in the industry".

[8] Peter James later accused the wider company's management of being lukewarm toward Flight Unlimited III during development, since their biggest sellers were action-oriented games like Thief: The Dark Project.

[20] Tal Blevins of IGN wrote that the game had "come a long way" since he had seen it earlier in the year, and that it was almost complete, with development of the real-time weather system in its final stages.

[21] Flight Unlimited III was shown again at EAA AirVenture Oshkosh in July,[22] at which point beta testing was nearly complete and the game was "90% done", according to James.

[32] Together with the costly development of Flight Combat, the game's low sales used up Looking Glass's earnings from Thief: The Dark Project and System Shock 2, which had helped them recover from the failures of British Open Championship Golf and Terra Nova: Strike Force Centauri.

"[1] PC Gamer UK's Dean Evans wrote that the game has "a poetic grandeur", as well as an "astonishing attention to detail" greater than that of its predecessors.

"[6] Simon Bradley of PC Zone wrote, "FUIII has atmosphere in a way that MS Combat Flight Sim can't even dream of."

[7] Tony Lopez of GameSpot called the game's environmental modeling "simply breathtaking" and noted that elevations were rendered more smoothly than in Fly!

[5] IGN writer Marc Saltzman commented that the game features "absolutely stunning terrain at all altitudes, realistic weather and lighting effects, and highly-detailed planes".

Saltzman praised the accuracy of Flight Unlimited III's physics but remarked that the game's frame rate was "noticeably slower" than that of its rivals.