The E46 M3 was first introduced in production form at the 2000 Geneva Motor Show, with concept design having begun in 1997. It was powered by the 3.2-litre S54 straight-six engine, the final evolution of the BMW S50 naturally aspirated inline-six. The S54 was rated at 252 kW (343 PS) at 7,900 rpm and 365 Nm at 4,900 rpm, with a redline of 8,000 rpm. The engine featured individual throttle bodies for each cylinder and electronic throttle control.
Available transmissions were a Getrag 420G 6-speed manual or an SMG-II 6-speed automated manual transmission with electrohydraulic clutch actuation, selectable via the shift lever or steering wheel paddles. Total production reached 56,133 coupes and 29,633 convertibles, all assembled at the BMW Regensburg factory.
In the United States, the E46 M3 competed in the 2000 American Le Mans Series GT category, finishing third in the championship. The S54 straight-six engine proved uncompetitive against the Porsche 996 GT3, prompting BMW to develop a new racing car built around a more powerful engine.
The result was the E46 GTR racing car, introduced in February 2001. Powered by a 330 kW (443 hp) version of the 3,997 cc P60 V8 engine, the GTR won the 2001 American Le Mans Series GT category, with Jorg Muller taking the class victory. The car's eligibility became controversial, with rival teams questioning whether it met homologation requirements as a production vehicle available for public purchase. The ALMS rules were subsequently changed to require 100 cars and 1,000 engines for homologation, a threshold the GTR road car was never intended to meet, leading to BMW's withdrawal from ALMS competition with the GTR.
The E46 M3 platform was used by BMW in the relaunched Deutsche Tourenwagen Masters series. BMW operated the M3 in DTM competition during this period as the series ran under its revised regulations, fielding the car through factory-supported teams as part of its touring car programme.
The most focused road version of the E46 M3 was the CSL (Coupe Sport Leichtbau), produced in 2004 in a run of 1,383 cars. The CSL weighed 1,385 kg, some 110 kg lighter than the standard M3, with weight reductions achieved through a carbon fibre roof, glass-reinforced plastic structural components, carbon fibre body panels, and removal of much of the standard car's sound insulation and comfort equipment. The S54 engine in the CSL was upgraded to produce an additional 13 kW over the standard car through sharper camshafts, a larger carbon fibre intake manifold, and revised exhaust valves. The sole transmission option was the SMG II with software revised for 80-millisecond shift times.
The E46 M3 generation is regarded as a high point of the M3 lineage for its combination of a naturally aspirated high-revving six-cylinder engine, balanced handling, and motorsport-derived engineering. The GTR variant's controversial ALMS campaign and subsequent victory remained one of the most debated homologation battles in American endurance racing during the early 2000s. The E46 M3 was succeeded by the E9x generation, which used a V8 engine, and the M3 lineage returned to turbocharged six-cylinder power with the F80 generation in 2014.