Racing team owner Tom Walkinshaw encouraged Jaguar to enter the XJS into the 1981 European Touring Car Championship, a partnership that succeeded in winning the competition in 1983. From 1983, Jaguar provided factory support to Group 44 Racing, supplying V12 engines for their IMSA GT Championship XJR-5, and supporting a Le Mans entry in 1984. In 1985, Jaguar and TWR agreed to enter the FIA Group C World Sportscar Championship, developing the XJR-6 powered by the same Jaguar V12 engine. TWR took over the IMSA GT Championship operation in 1988, launching the XJR-9 to compete in both series. The XJR-9, also using the Jaguar V12, won the 1988 24 Hours of Le Mans and World Sportscar Championship. The poor fuel consumption of the V12, combined with new rules restricting refueling, forced the replacement of the V12 engine in subsequent cars, the XJR-10 and XJR-11. The Austin Rover V64V engine, previously used in the MG Metro 6R4, had become available after the Group B rally ban in 1987. TWR investigated the compact, lightweight, and fuel-efficient engine as a potential replacement.
Jaguar’s Director of Engineering, Jim Randle, initiated a project to design a car capable of winning Le Mans "in house," reminiscent of the C-Type and D-Type. Randle developed a 1:4 scale cardboard model of a potential Group B racing car over Christmas 1987. This model was refined in the Jaguar styling studio, with a design by Keith Helfet chosen for being “more obviously Jaguar in its look.” A team of twelve volunteers, known as “The Saturday Club,” worked evenings and weekends on the project, aiming to gather data on handling, aerodynamics, and aluminium structures.
The initial XJ220 concept car was unveiled at the 1988 British International Motor Show in Birmingham. Its positive reception prompted Jaguar to put the car into production, with approximately 281 deposits of £50,000 each taken. The concept car was designed with a mid-engine, all-wheel-drive layout, powered by a Jaguar V12 engine. The name XJ220 was chosen as a reference to the XK120’s top speed, with the concept aiming for a 220 mph (350 km/h) maximum. The bodywork was hand-built from aluminium by Park Sheet Metal and painted by QCR Motors LTD. The concept car featured electrically operated scissor doors and a transparent engine cover. The interior was trimmed in Connolly Leather by Callow & Maddox and included heated windscreens, electric windows, air conditioning, and an Alpine CD player.
Jaguar were unable to develop the XJ220 in-house due to existing commitments to the XJ and XJS models. Jaguar and TWR formed JaguarSport Ltd. in 1987 to produce racing cars, and Jaguar’s board tasked JaguarSport with developing the XJ220. The development team, led by Mike Moreton, assessed the car’s feasibility and identified the need for engineering changes.
Significant changes were made to the production version. The initial V12 engine was replaced by a 3,498 cc (3.5 L; 213.5 cu in) twin-turbocharged V6 engine, designated the Jaguar/TWR JV6. This decision was based on weight, dimensions, and emissions considerations. TWR purchased the rights to the V64V engine from Austin Rover in 1989 and developed the JV6 under Allan Scott. The engine had a 90° bank angle, four valves per cylinder, and produced 550 PS (405 kW; 542 hp) at 7,200 rpm and 475 lb⋅ft (644 N⋅m) of torque at 4,500 rpm. The car could accelerate from 0–60 mph (97 km/h) in 3.6 seconds and reach a top speed of 212.3 mph (341.7 km/h).
All-wheel drive was abandoned in favour of rear-wheel drive to reduce complexity. FF Developments, who had previously worked on the four-wheel drive system for the concept car, modified the transaxle for rear-wheel drive. The transmission featured triple-cone synchromeshing on first and second gears. The exterior retained the aluminium body panels, manufactured by Abbey Panels, but the scissor doors were dropped, and the design was revised to accommodate the new engine. The interior was trimmed in leather and featured electric windows, heated mirrors, and air conditioning.
A racing version, the XJ220-C, was introduced at the 1993 Autosport International motor show. Driven by Win Percy, it won its first race, a round of the BRDC National Sports GT Challenge at Silverstone. Three XJ220-Cs were entered in the 1993 24 Hours of Le Mans, winning the GT class, but were controversially disqualified for failing to run with catalytic converters. In 1995, four XJ220-Cs were entered in the GT1 class at Le Mans, but neither team achieved a strong result. A lightly modified road-going XJ220 also competed in the Italian GT Championship in 1993. TWR developed six further road cars, the XJ220-S, with carbon-fibre bodywork and a tuned engine producing 700 PS (515 kW; 690 hp).