The New 2008 BMW M3

The replacement for the original M3 first appeared at the 1992 Paris Auto Show. This E36 coupe model got the 3.0 L S50B30 straight-6 engine, which produced 286 hp (210 kW).

For the 1996 model year the M3 was upgraded to a new 3.2 L, 321 hp (236 kW) engine (S50B32), a six speed gearbox and the M5's larger brakes. The new SMG gearbox was also offered as an option. These models are often described as the "Euro" models to differentiate them from the models sold in North America, which were quite different. The 3.2 Euro is also known as the M3 "Evolution" or "Evo".

The first E36 M3 to be imported to the United States was the 1995 model, which received a 3.0 L engine with 240 hp (176 kW) and 305 N•m (225 ft·lbf) (S50B30US) and a different suspension. An M3 that was sold in the United States in 1995 was one of 2953 '94 models shipped from Europe. This coupe has a 3.0L 24-valve DOHC straight six-cylinder engine. This engine produces 240bhp at 6000rpm and 225lbs-foot of torque at 4250. BMW also produced somewhere between 120 and 125 M3 Lightweights (only 85 made it to the US), often called the CSL (for coupe sports lightweight). These were reduced weight versions of the model intended to be used on the street or on the track. It was about 200 to 300 pounds lighter than a stock M3 with many of the car's features removed, such as air conditioning, leather seats, and the sunroof.

The 1996-1999 model years had displacement bumped up to 3.2 L, with 240 hp (176 kW) and 320 N•m (236 ft·lbf) which is the same engine used in the early M Roadster and M Coupe. The 1996+ model is known for being more difficult to tune for performance, due to slightly smaller intake manifold runners and more complicated electronics (OBDII). It was also available as a sedan starting in model year 1997, and as convertible in 1998. Production of the sedan was halted in 1998, while the other models continued until 1999.