Borrowing design cues from the existing XL1000V Varadero, Honda set about developing a bike that offered substantially bigger proportions than most 125 cc motorcycles, with a seat height of 802 mm (31.6 in), ensuring that the rider would gain not only a commanding road view but also ensure the motorcycle was capable of offering genuine pillion access.

The XL125V had a fuel capacity of 17.5 L (3.8 imp gal; 4.6 US gal), which included a 2-litre reserve – larger than most other 125 cc motorcycles.Following the cues taken from the XL1000V Varadero, Honda chose to power the new model with the 124 cc 4-stroke SOHC 4v 90° V-twin engine that was originally developed for the VT125C Shadow cruiser motorcycle.

The engine sat in an all-new tubular steel frame designed for the new model, however the cast aluminium box-section swing arm was taken from the XL650V Transalp motorcycle (as was the rear luggage rack) and equipped with mono-shock rear suspension that provides 150 mm (5.9 in) of travel.

After the introduction of the Euro III Emission standards, the XL125V Varadero would either have needed to be withdrawn from production or modified.

To enable the bike to meet the new emission standards, the engine is now fuel-injected, is slightly de-tuned and has a catalytic converter.