Concept design of the E46 M3 began in 1997. Exterior design was led by Ulf Weidhase; interior design by Martina Bachmann. The car was previewed as a concept at the 1999 International Motor Show Germany, closely resembling the production version, and officially launched at the March 2000 Geneva Motor Show.
The body was offered in coupé and convertible forms. An M3 Touring station wagon prototype was also constructed to evaluate feasibility on the E46 estate platform, but it did not reach production.
The S54 3.2-litre straight-six engine is the final evolution of the BMW S50 naturally aspirated family. It is rated at 343 PS at 7,900 rpm and 365 N·m at 4,900 rpm, with a redline of 8,000 rpm. Like other M engines of the period, the S54 uses individual throttle bodies for each cylinder; electronic throttle control via drive-by-wire was a new feature for this unit.
Available transmissions were the Getrag 420G six-speed manual and the SMG-II six-speed automated manual, the latter using an electrohydraulically actuated clutch operable via the shift lever or steering-column paddles. The SMG-II was praised for racetrack performance but criticised for hesitancy and lurch in low-speed traffic. The E46 M3 coupé achieved 0–100 km/h in 5.2 seconds with either transmission, lateral grip of 0.89 g on the skidpad, and a top speed electronically limited to 250 km/h. Kerb weight is 1,565 kg.
The M3 CSL (Coupe Sport Leichtbau) was produced in 2004, limited to 1,383 cars in two colours — Silver Grey Metallic and Black Sapphire Metallic. The CSL weighed 1,385 kg, 110 kg lighter than the standard M3, achieved through a carbon fibre roof (saving 7 kg and lowering the centre of gravity), glass-reinforced plastics at various structural points, carbon fibre body panels, thinner rear glass, and deletion of sound insulation, navigation, electric seats, air conditioning, and stereo. The interior featured fibreglass racing bucket seats and carbon fibre trim throughout. Tyres were Michelin Pilot Sport Cup semi-slicks. The engine was upgraded with sharper camshafts, a larger carbon fibre intake manifold, and revised exhaust, producing 13 kW more than the standard S54. Shift times on the mandatory SMG-II were reduced to 80 milliseconds with revised software. Aerodynamically, a carbon fibre front splitter increased front downforce by 50% and a carbon fibre rear diffuser was fitted.
The Competition Package (ZCP in the US, M3 CS in the UK), introduced in December 2004, carried over CSL-sourced components including 19-inch BBS wheels, stiffer springs, the faster 14.5:1 steering rack, M track mode for the stability control, and larger brake components, while retaining the standard S54 engine.
The M3 GTR Straßenversion was a road homologation car for the American Le Mans Series race programme. Built in 2001 alongside the ALMS race cars at Regensburg's special vehicles department, three production-ready display examples were completed. Powered by a 4.0-litre P60 V8 engine detuned from 331 to 285 kW, with a top speed of 295 km/h and a dry weight of 1,350 kg, the road GTR was priced at €250,000. When ALMS changed homologation rules at the end of 2001, the road programme was cancelled; the seven development prototypes were recycled but the three display cars remain with BMW AG. The M3 GTR gained widespread recognition through its appearance in the 2005 video game Need for Speed: Most Wanted.
The E46 M3 GTR race car won the 2001 American Le Mans Series GT class. In November 2024, BMW wrapped the 2001 ALMS GT-winning car in the Need for Speed: Most Wanted livery for display at the BMW Welt in Munich.
The E46 M3 is consistently cited as the pinnacle of the naturally aspirated M3, its high-revving S54 engine and analogue character marking a clear boundary between the pre-turbocharged era of the M3 and the turbocharged E90/F80 generations that followed from 2007.