The shift from 2.0-litre Formula Two rules to 2.5-litre Formula One attracted new constructors including Mercedes-Benz, Lancia, and Vanwall, while others such as Cooper and Connaught could not get F1-specification cars ready in time. Maserati had lost driver Felice Bonetto in the 1953 Carrera Panamericana and began the season with a reshuffled roster. Alberto Ascari left Ferrari over a salary dispute to join Lancia, taking Luigi Villoresi with him, while Ferrari signed Maurice Trintignant from Gordini. The Indianapolis 500 remained on the calendar but attracted no Formula One competitors; Bill Vukovich won for the second consecutive year.
The season's defining development was the arrival of Mercedes-Benz at the French Grand Prix with their streamlined W196. Fangio immediately left Maserati to join the German team alongside Karl Kling and Hans Herrmann. At Reims, the two silver cars circulated together on the long straights and finished first and second by a margin that demonstrated the machinery's superiority. The streamlined bodywork proved less effective at the twistier Silverstone circuit, where Ferrari's José Froilán González won the British Grand Prix.
The Argentine Grand Prix opened under controversy. Ferrari lodged a protest about Maserati's pit stop procedures, confident of success, and signalled their drivers to maintain position rather than fight. The FIA rejected the protest and Fangio won, giving him his first home victory. In Belgium, Fangio again took the win for Maserati before departing for Mercedes.
At the French Grand Prix, the Mercedes W196 appeared in full streamlined form and Fangio and Kling finished one-two in a procession. At the German Grand Prix — given the honorary title of Grand Prix of Europe — practice was overshadowed by the fatal accident of Argentine Onofre Marimón, the first fatality during a Formula One championship weekend. Maserati withdrew from the race in mourning. Fangio won comfortably for Mercedes, and then clinched the championship at the Swiss Grand Prix, leading González home by nearly a minute.
At the Italian Grand Prix, Fangio won again despite a fierce mid-race battle involving Ascari — finally racing the Lancia — and Stirling Moss in the Maserati. Moss had looked set for victory until his oil pressure dropped and forced retirement. The season finale in Spain saw Lancia field their D50 for the first time; Ascari took pole but retired with clutch failure on lap 9. Mike Hawthorn won for Ferrari, with three different constructors on the podium.
Juan Manuel Fangio finished the season with 42 points (under a best-five-results rule), becoming the first driver to win the championship driving for more than one constructor in a single season. José Froilán González finished second with 25 points and Mike Hawthorn third with 24.
Fangio's mid-season switch from Maserati to Mercedes is unique in championship history — no other driver has won the title while representing two different teams in the same year. The debut of the streamlined Mercedes W196 at Reims set a new benchmark for engineering ambition in Formula One, with the cars finishing first and second by a substantial margin.
The 1954 Moroccan Grand Prix, a non-championship event at Ain-Diab, previewed the potential of both Fangio and Moss for the coming seasons.
The 1954 season marked the end of Italian dominance. Mercedes had arrived and made clear that the era of Ferrari and Maserati supremacy was fragile. Fangio's second title in four years established him as the benchmark of the era, while the return of full Formula One regulations after two seasons of Formula Two racing injected renewed variety into the constructors' battle. The season also introduced Lancia D50 — a car that would, after Lancia's withdrawal and the transfer of assets to Ferrari, define much of the 1956 championship.