Digital Illusions CE developed RalliSport Challenge 2 as a completely new approach from its predecessor, with the developers aiming to create a more realistic and diverse simulation of rally racing by introducing added environmental effects and an improved car damage and handling model.

[2] A major addition to the design of RalliSport Challenge 2 over its predecessor was enhancements to the damage and handling model.

Between races, players also can adjust tuning options to manipulate the handling of their car, including to change the tyre type for different environments, gear type and ratio, steering, and advanced options for brakes, power, and suspension.

[3] Online play was enhanced by the Xbox Sports Network, providing support for round robin and single elimination tournaments and seasons of races for players to compete as individuals or as part of a team.

Rallisport Challenge 2 is now playable online again on the replacement Xbox Live servers called Insignia.

[7] Lead designer Patrick Bach noted that the game was intended to "better reflect what a real rally is" over its predecessor, with the inclusion of an improved physics and damage model, wider roads, and longer track lengths.

[9] In September 2003, RalliSport Challenge 2 was announced by Microsoft Game Studios as the first racing title in the Xbox Sports Network, a series of licensed sports games developed to take advantage of multiplayer capabilities under Xbox Live.

[16] Salta cited the "sheer energy" and "aggressive" tone of the tracks as suited to the racing genre.

[17] Exposure from RalliSport Challenge 2 led Volvo to license Salta's music for several advertisements for the S40, supported by footage from the game.

[22] GameSpy praised the game as "supremely entertaining" and "hugely varied, devilishly addictive, and as purely accessible as a would-be rally champion could hope for.

[30] Xbox Nation praised the game's "near photo-realism" as "shockingly good" and "hyperreal", describing the visuals as an "amazing replication of vehicular life on the edge and in the dirt".

[33] Critics also focused upon the accessible handling of the cars, bridging the arcade and simulation genre of racing games.

[29] Similarly, Xbox Nation stated the "controls feel just arcadey enough to take the frustration out of driving a real car, but without being condescending to the veterans of the genre".