Both Illien and Morgan had been working at Cosworth on the DFX turbocharged methanol engine for CART when differences over future development direction led them to leave and establish their own firm. Cosworth claimed at the time that the Ilmor engine was little different from their own planned modifications to the DFX, a charge the new company disputed.
Ilmor's founding capital came from Roger Penske, who needed a competitive alternative to the dominant Cosworth DFX. The Ilmor 265-A, initially badged as the Ilmor-Chevrolet Indy V-8, debuted at the 1986 Indianapolis 500 with Team Penske driver Al Unser. The program expanded to three Penske drivers in 1987 — Rick Mears, Danny Sullivan, and Al Unser — along with Patrick Racing and Newman/Haas Racing. Mario Andretti, driving for Newman/Haas, took the engine's first Indy car victory at Long Beach that year, and also won the pole position for the 1987 Indianapolis 500. Rick Mears earned the engine's first 500-mile race victory at the 1987 Pocono 500.
Now rebadged as the Chevrolet Indy V8, the engine took its first Indianapolis 500 win with Mears in 1988. Between 1987 and 1991 the engine won 64 of 78 CART races, establishing dominance across the entire Indy car field.
The 265-A was followed by the 265-B in 1992, fielded exclusively by Penske with Rick Mears and Emerson Fittipaldi, winning four CART races. Emerson Fittipaldi won the 1993 Indianapolis 500. The 265-C replaced both earlier variants for the 1993 season, but Chevrolet withdrew its badging support after that year. For 1994 the engines ran as the Ilmor-C and Ilmor-D without manufacturer branding.
In 1994 Ilmor produced the Mercedes-Benz 500I engine specifically for the Indianapolis 500, exploiting a rules loophole that permitted stock-block pushrod engines of larger displacement and higher boost. The 500I produced approximately 200 horsepower more than the competing Cosworth XB and Ilmor 265D, and Al Unser Jr. won the race convincingly. The loophole was closed for 1995.
From 1995 Mercedes-Benz became the badging partner for the Ilmor Indy car engines. After the CART-IRL split in 1996, Ilmor primarily supplied CART teams. Mercedes departed CART after the 2000 season.
In 1991 Ilmor entered Formula One as exclusive supplier of a V10 engine to the Leyton House team, and also supplied Tyrrell from 1992. Mercedes-Benz officially entered F1 in 1994 using an updated Ilmor engine and acquired Chevrolet's 25 percent share of Ilmor that same year.
Ilmor built the Mercedes-Benz engines for McLaren, a relationship that resulted in three victories in 1997 and back-to-back drivers' championships for Mika Hakkinen in 1998 and 1999, as well as the constructors' championship in 1998. Paul Morgan, co-founder of Ilmor, was killed in 2001 when the vintage Hawker Sea Fury he was landing crashed at Sywell Aerodrome. Following his death, DaimlerChrysler increased its stake to 55 percent in 2002 and renamed the entity Mercedes-Ilmor. By 2005 DaimlerChrysler became sole owner and renamed it Mercedes-Benz High Performance Engines Ltd.
In 2005 Mario Illien concluded a deal with Roger Penske to purchase the Special Projects portion of the company, re-establishing an independent Ilmor Engineering Ltd. This entity worked in partnership with Honda Performance Development on IndyCar engines from 2003 through 2011, handling co-assembly, preparation, tuning, and maintenance. Honda discontinued that partnership after the 2011 season.
When Chevrolet returned to the IndyCar Series in 2012, it partnered with Ilmor on the Chevrolet Indy V6 engine program, supplying engines to Team Penske free of charge with other teams using a lease arrangement.
Ilmor also developed the Ilmor X3 motorcycle engine for the 2007 MotoGP World Motorcycle Championship, entering one race before the team withdrew due to funding problems after a single appearance. In 2007 Ilmor's marine division entered powerboat competition, with its MV10 engines winning the 2007 Powerboat P1 Evolution Class World Championship and additional European championships in 2008 and 2009.
Ilmor's history illustrates how a small independent engineering firm can reshape the competitive landscape of global motorsport. From ending the DFX's dominance in American open-wheel racing to powering McLaren to consecutive Formula One titles, Illien and Morgan built an organization whose technical output spanned continents and series. Today Ilmor continues as a broad-based high-performance engineering consultancy, applying racing expertise to automotive, defence, marine, and energy sectors.