Introduced in September 1973 for the 1974 model year, the Mustang II arrived roughly coincident with the oil embargo of 1973 and subsequent fuel shortages.

"[7] Ford "decided to call it Mustang II, since it was a new type of pony car designed for an era of high gas prices and fuel shortages.

"[14] After becoming president of Ford Motor Company on December 10, 1970,[15] Lee Iacocca ordered the development of a smaller Mustang for 1974 introduction.

[16] The original pony car was based on the compact Falcon and for its second-generation, the Mustang evolved from an even smaller platform, the Pinto that was rolled out in 1971.

[23] The marketplace was adjusting to the fuel crisis, increasing insurance rates, United States emission standards, safety regulations, and downturns in the economy, as well as the waning consumer demand in the pony car segment.

Conversely, the Mustang's former corporate twin the Mercury Cougar was upsized to the intermediate Ford Torino platform to better compete in the growing mid-size personal luxury car segment.

A Mercury version of the Mustang II badged as a Capri (as evidenced by a proposal using the Mustang II's 2+2 body with a rounded rear quarter window style and characteristic bodyside sculpting) was briefly considered, but the strong sales of the Ford Capri (Mk1) as a captive import through Lincoln-Mercury dealerships shelved plans for a corporate twin.

[31] Designers and engineers worked feverishly on a "reinvented" Mustang, mimicking the first version, by the traditional new model year introduction during the fall of 1973.

[32] The new Mustang II returned to a size closer to the 1965 model, ultimately winning the Motor Trend Car of the Year.

[33] The economical Mustang II became popular for consumers almost concurrently with their experience with gasoline rationing that was part of the 1973 oil crisis.

Sales of such imports attracted fewer than 100,000 customers in 1965, but by 1972 demand had increased; therefore, the "Mustang II's mission was to capture a big slice of this sizable new pie.

Mustang II packages ranged from the base "Hardtop," 2+2 hatchback, a "Ghia" luxury group with vinyl roof, and a top-of-the-line V6-powered Mach 1.

"The Mustang II's attractive all-new styling was influenced by coachbuilder Ghia of Italy, which had recently been acquired by Ford.

"[24] Mustangs lost their pillarless body style; all models now had fixed rear windows and a chrome-covered "B" pillar that resembled a hardtop, but was a coupe.

Unsure about whether or not to group the Mustang II with sporty cars, Consumer Guide initially referred to the car as a "luxury subcompact",[37] while Ford brochures suggested that the luxury-trim Ghia model, with its formal roofline, stylish exterior, and plush interior, be thought of as resembling the popular personal luxury category of the time.

"With oil crisis memories starting to fade," Ford needed a V8 in the Mustang II to return "performance to respectable levels.

The Ghia received opera windows and a padded vinyl half-top, as well as a plush Silver Luxury Group option.

[46] New also was the "Cobra II" appearance package, with a black grille, simulated hood scoop, front and rear spoilers, quarter window louvers, and dual over-the-top racing stripes with matching lower rocker stripes and cobra emblems on the front fenders, echoing the appearance of the original 1965–68 Shelby Mustangs[47] – available with all engine choices.

"[51] Following continuing public concern about fuel efficiency, Consumer Guide that year tested a 4-cylinder Ghia with a 4-speed manual transmission, an increasingly popular configuration.

[58] A "chic" Fashion Accessory Package was also offered this year, featuring Southwest-looking, striped "Fresno cloth" seating, enhanced interior lighting, vanity pockets, and special pinstriping.

Nevertheless, there were also mixed contemporary reviews including Consumer Reports reporting that "there are better subcompacts on the market than the Mustang II" and recommended the AMC Gremlin as a car that was at least as good, and in some respects superior, in terms of seating, noise level, normal and emergency handling, and acceleration;[61] and Road & Track described that the Ford was neither fast nor particularly good handling.

"As the smallest, lightest Mustang since the original, it was a fresh start for Ford's pony car and a refreshing return to rationality.

[65][66] Opinions include noting in 2003 that if there were any steps forward in technology with the Pinto chassis, it was that it had a rack-and-pinion steering gear rather than the Falcon's recirculating ball, and front disc brakes were standard," Edmunds Inside Line wrote of the Mustang II: "It was too small, underpowered, handled poorly, terribly put together, ill-proportioned, chintzy in its details and altogether subpar.

The New York Times said in 2006 that defective steering, together with a fuel tank of the same design as in the Pinto, a car "forever infamous for exploding when struck in the rear," caused owners anxiety that was "heightened by the fact that some Mustang IIs had Firestone 500 tires, notorious in the 70's for widespread failures."

Despite the 25-percent rise in sales for 1978, "not even the high-profile Cobra with its flashy decals and snazzy spats and spoilers could save the day for the second-generation Mustang.

"[9] Ford hosted the first "National Mustang II Reunion" in 2016 at the company's offices where the pony car re-invented "for an all-new era when build quality and fuel efficiency were more important to buyers than no-frill options and high-horsepower.