The event was limited to cars with engine displacements of 2,000 cc or less and staged by the Light Car Club of Australia, formerly the Victorian Light Car Club. The field drew 18 starters. Two entries failed to reach the grid: Jack Sidebottom's Singer was excluded at scrutineering, and the Austin 12 of Compton Jones was withdrawn after its engine suffered a piston failure during practice.
The 1932 edition introduced the first significant structural change in the event's short history: it became the first Australian Grand Prix decided on a straight handicap basis, with victory going to the first car to complete 31 laps of the 6.463-mile Phillip Island road circuit. The previous practice of dividing competitors into four separate displacement classes was discontinued. Under the handicap system, the two scratch competitors — those receiving no time allowance — were required to concede starts of up to 29 minutes to the slowest entries, an advantage that equated to roughly four laps. The winner was determined purely by adjusted elapsed time over the full distance.
Bill Thompson, driving a Bugatti Type 37A supercharged entered by Woolworth Tyre Co., started from scratch and won the race with an actual elapsed time of 2 hours 40 minutes 11 seconds, corresponding to a corrected handicap time of 3 hours 15 minutes 11 seconds. Thompson was also awarded the Herald Trophy for recording the fastest individual lap of the day.
Second place on corrected time went to Geoff Disher in a Salmson, starting with a 16-minute handicap, who completed the distance in an actual time of 3 hours 0 minutes 7 seconds. Cyril Dickason finished third in an Austin 7 Ulster, with Mert Wreford fourth in a Bugatti Brescia and Carl Junker fifth in a Bugatti Type 39.
Bill Northam, racing an Austin 7 supercharged with the maximum 29-minute allowance, finished sixth on corrected time. Les Jennings in a Morris Cowley took seventh, and Clarrie May in a second Austin 7 supercharged was eighth.
Arthur Terdich, a former Australian Grand Prix winner, also started from scratch alongside Thompson in a Bugatti Type 37A supercharged but retired after only 8 laps. Harold Drake Richmond retired in a Bugatti Type 37, and Alan Chamberlain's Chamberlain Special failed on lap 4.
The Phillip Island road circuit measured approximately 6.463 miles per lap and ran on unsealed public roads encircling part of the island. Bill Thompson set the circuit's lap record at this event — 4 minutes 49.4 seconds at 80.397 mph — a benchmark that stood through the pre-war era of Australian motor racing.
Thompson's victory on scratch time — ahead of a field receiving substantial handicap advantages — confirmed the performance superiority of the front-running Bugattis over the mixed amateur field. The shift from the multi-class system to a pure handicap format reflected an intention by the Light Car Club of Australia to produce closer competition across the full starting field rather than rewarding only class winners. The format would be retained in subsequent editions of the event.
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