Fabi began in karting, winning the European Karting Championship in 1975. He followed that with the European Formula Ford 1600 title in 1977, then moved to European Formula Three in 1978 with Forti Corse, scoring victories at Zolder, Dijon-Prenois, and Vallelunga and finishing fourth in points. Two seasons in European Formula Two — for March Racing in 1979 and the ICI Roloil Racing Team in 1980 — developed his single-seater credentials further. The 1980 campaign in particular yielded three wins at Hockenheim and the Nürburgring, earning him third in the championship standings.
Fabi entered Formula One in 1982 with Toleman, driving a TG181C-Hart. The season was disrupted early when Candy, Toleman's title sponsor, switched its backing to Tyrrell; despite the threat to his seat Fabi saw the campaign through to its end, qualifying for six of fourteen rounds. He returned to F1 in 1984 with Brabham as number two to reigning World Champion Nelson Piquet, splitting his season between Grand Prix racing and the CART series with Forsythe Racing. When Corrado Fabi substituted during the overlapping IndyCar rounds, the two brothers briefly shared the same F1 seat across a season. Teo scored three championship points, including a third place finish at the Detroit Grand Prix.
Brabham released Fabi for 1985 and he eventually joined the newly Benetton-backed Toleman team from the Monaco Grand Prix onward. Despite an uncompetitive package, his raw pace was evident: he claimed the team's only pole position at the German Grand Prix at the new Nürburgring, though a slipping clutch ruined his race. The 1986 season with Benetton, now using turbocharged BMW power producing around 1,400 bhp in qualifying trim, brought two more pole positions at the Austrian and Italian Grands Prix — both high-speed circuits that suited his aggressive style — and a best race finish of fifth at the Spanish Grand Prix. He remained at Benetton in 1987, the team having switched to a Ford Cosworth turbo, and achieved a career-best race finish of third at the Austrian Grand Prix while ending the season ranked ninth overall. Fabi appeared in 71 Formula One Grands Prix in total, scoring three pole positions, two fastest laps, and 23 championship points.
Fabi's IndyCar debut in 1983 for Forsythe Racing immediately announced his ability on American ovals. At the Indianapolis 500 he qualified on pole with a four-lap average of 207.395 mph — becoming the first rookie to start from the front at Indianapolis since Walt Faulkner in 1950, a record that stood until 2025. He led 23 laps before retiring with a broken fuel filter, but won the series' Rookie of the Year award. He also won three CART races that season — at Pocono, Mid-Ohio, and Laguna Seca — finishing second in the championship to Al Unser.
During his return to IndyCar from 1988 to 1990, Fabi drove for Porsche Motorsports, years in which the German manufacturer's Indy V8 engine developed from an uncompetitive unit into a genuine race-winner. His final victory in the series came at Mid-Ohio in 1989, leading 71 of 84 laps. Subsequent campaigns in 1993 for Hall VDS Racing and 1994 for the reorganised Hall Racing produced multiple top-five finishes, and his best Indianapolis 500 race result was seventh in 1994.
Fabi's sportscar career reached back to 1980, when he drove a Lancia Beta Monte Carlo at Le Mans with Scuderia Lancia Corse. In 1982 with Martini Racing's Lancia LC1 he won the 1000 km of Nürburgring with Michele Alboreto and Riccardo Patrese, and took victory at the 1000 km of Imola in 1983 co-driving with Hans Heyer.
After Porsche withdrew from IndyCar racing at the end of 1990, Fabi moved to Tom Walkinshaw Racing's Silk Cut Jaguar team for the 1991 World Sportscar Championship. He won the Silverstone round with Derek Warwick and finished third at Le Mans sharing a Jaguar XJR-12 with Bob Wollek and Kenny Acheson. Those results were enough to secure the World Endurance Championship for Drivers title with 86 points. In 1993, driving for Peugeot Talbot Sport at Le Mans in a Peugeot 905 Evo 1B shared with Thierry Boutsen and Yannick Dalmas, he finished second overall.
Teo Fabi remains one of the more versatile drivers of his era, having competed at the highest levels of Formula One, American open-wheel racing, and prototype sportscar competition across more than fifteen years. His three Formula One pole positions — recorded with machinery that rarely put drivers in contention for wins — reflect a natural speed that translated equally well to the banked ovals of Indianapolis, the sprint circuits of the CART calendar, and the marathon distance of Le Mans.