The race emerged directly from the collapse of the Gordon Bennett Cup system, which had limited each country's entries to three cars regardless of the size of its automobile industry. France had the largest motor industry in Europe and resented being placed on a numerical footing with countries like Switzerland that had a single manufacturer. After French driver Léon Théry won the Gordon Bennett Cup for the second successive time in 1905, the responsibility for hosting the 1906 event fell to the Automobile Club de France. Instead of running another Gordon Bennett race, the ACF ended the series and organised its own event with no national entry limits.
The political negotiations around changing the Gordon Bennett formula also produced a lasting institutional consequence: the conference held in 1904 to consider the French proposal led to the formation of the Association Internationale des Automobile Clubs Reconnus (AIACR), the predecessor of the Fédération Internationale de l'Automobile.
The ACF chose a 103.18-kilometre circuit devised by the Automobile Club de la Sarthe outside Le Mans, forming a roughly triangular course through farmlands and forests. The route started outside the village of Montfort, turned south-west toward Le Mans through the Fourche hairpin, then south-east toward Saint-Calais, and back north to La Ferté-Bernard before returning south-west to Montfort. Wooden plank roads were constructed through the towns of Saint-Calais and Vibraye as an alternative to the speed-limit sections used in the Gordon Bennett races. Each competitor lapped the circuit six times per day over two days, for a total of twelve laps and 1,238.16 kilometres.
To control spectators — a recurring problem in intercity road races — the ACF erected 65 kilometres of palisade fencing, concentrated around towns, villages, and road junctions. Footbridges crossed the track at key points, and a 2,000-seat grandstand was built at the start and finish at Montfort. A tunnel connected the grandstand to the pit lane.
Thirty-four cars entered, representing twelve manufacturers: ten French (Clément-Bayard, Hotchkiss, Gobron-Brillié, Darracq, Vulpes, Brasier, Panhard, Grégoire, Lorraine-Dietrich, and Renault), two Italian (FIAT and Itala), and one German (Mercedes). No British or American manufacturers entered.
The ACF imposed a maximum weight limit of 1,000 kilograms, plus 7 kilograms for a magneto. Fuel consumption was limited to 30 litres per 100 kilometres. Engine displacements ranged enormously — from 7,433 cc for the Grégoire to 18,279 cc for the Panhard. All entries used four-cylinder engines.
Michelin introduced the jante amovible, a detachable rim with a tyre pre-fitted, which could be swapped onto a car in the event of a puncture in far less time than conventional tyre changing. The conventional method — slicing off the old tyre and forcing on the new one — took around fifteen minutes; the Michelin rims took under four. Renault fitted them on rear wheels, FIAT used a full set, but Itala and Panhard could not carry them without exceeding the weight limit. This innovation proved decisive in the race.
The prize, from which the race took its name "Grand Prix," was 45,000 French francs — equivalent to approximately 13 kilograms of gold at the franc's gold parity of 0.290 grams.
Cars departed at 90-second intervals from 6 am. Lorraine-Dietrich's Fernand Gabriel, scheduled to start first, stalled and could not restart before FIAT's Vincenzo Lancia moved past. Renault's Ferenc Szisz started third.
Brasier's Paul Baras set the fastest opening lap, covering 103.18 kilometres in 52 minutes and 25.4 seconds, leading the race overall. Szisz took over the lead on lap three and defended it through both days. The summer heat melted the tar used to seal the road surface, and the cars kicked it up into drivers' faces behind their goggles, causing eye injuries throughout the field. Renault's Edmond, racing mononymously, broke his goggles and was refused permission to replace them mid-race; he continued for two more laps nearly blind before retiring.
Szisz finished the first day — six laps — in 5 hours, 45 minutes, and 30.4 seconds, 26 minutes ahead of Albert Clément (Clément-Bayard) and more than 40 minutes ahead of FIAT's Felice Nazzaro. On the second day, Clément and Nazzaro swapped second place several times as both made tyre stops and refuelling halts; Clément's car lacked the Michelin detachable rims, and a conventional tyre change dropped him behind Nazzaro near the end of the race.
Szisz, despite a broken rear suspension on the tenth lap, had built so large a lead — over 30 minutes — that he could drive cautiously to the finish. He crossed the line with a combined two-day total of 12:12:07.0, a top speed of 154 km/h, and a 32-minute margin over Nazzaro. Clément finished third, Jules Barillier's Brasier fourth, Lancia fifth, and George Heath's Panhard sixth. Of the 32 starters, eleven completed both days.
Szisz's victory brought Renault a surge in sales, from around 1,600 cars in 1906 to more than 3,000 in 1907 and over 4,600 in 1908. But the race's deeper legacy was structural: it established the format of circuit racing on closed public roads, team-entered manufacturer cars, and a named "Grand Prix" as the highest prestige event in motorsport. The ACF ran the race again in 1907, and the German automobile industry organised the Kaiserpreis — the forerunner of the German Grand Prix — in direct response.
The 1906 Grand Prix is commonly regarded as the birth of Grand Prix motor racing as a formal sporting category, even though the term itself had appeared earlier and the race was retrospectively designated the 9th edition of the Grand Prix de l'Automobile Club de France by the ACF in 1933.