The W125 emerged directly from the weaknesses of its predecessor, the Mercedes-Benz W25. After the W25 proved increasingly uncompetitive during the 1936 season, Mercedes withdrew mid-year to concentrate on building a new car. A dedicated racing department was established within the company, and Rudolf Uhlenhaut — previously a production car engineer with extensive testing experience on the Nurburgring — was selected to lead the design team in late 1936.
Uhlenhaut had personally tested the W25 and diagnosed its fundamental problems: the suspension was too stiff, preventing the wheels from following the road, while the chassis itself flexed excessively, allowing the rear axle to bend by up to 7–10 cm under braking. The brief for the new car demanded a stiffer chassis and greater suspension travel. During one test session with the W25, a wheel came off the car, yet Uhlenhaut continued driving as if nothing had happened — an episode that illustrated both the car's poor character and his remarkable composure.
The W125 used a much stiffer tubular frame built from oval tubes of nickel-chrome molybdenum steel, which flexed considerably less than the W25 frame. The bodywork was aluminium, left unpainted in its bare silver colour — the practice that gave both Mercedes and their rivals Auto Union the enduring nickname of the Silver Arrows.
In the absence of any limitation on engine size (the formula imposed only a 750 kg maximum car weight), Mercedes designed a supercharged double overhead camshaft straight-eight engine of 5,662.85 cc. Bore and stroke were 94 mm x 102 mm. The engine used a Roots-type supercharger and produced between 560 and 595 hp at 5,800 rpm in race trim — an extraordinary figure for the era. Maximum torque was 632 lb-ft. The fuel mix used was carefully developed: 40% methyl alcohol, 32% benzene, 24% ethyl alcohol, and 4% light gasoline. The engine weighed 222 kg, approximately 30% of the car's total weight, and was mounted at the front.
On the test bed the most powerful W125 engine recorded 637 bhp at 5,800 rpm. The engine ran rough intentionally; if it began to run smoothly, it was a warning sign that the crankshaft was beginning to crack.
The transmission was a 4-speed constant mesh manual gearbox, an improvement over the sliding mesh type used in the W25, providing better reliability. The W125 reached race speeds of well over 300 km/h (190 mph) in 1937, particularly on the AVUS circuit, where streamlined bodywork was fitted.
A special version, the W125 Rekordwagen, was built for land speed record attempts. Fitted with a DAB V12 engine of 5,576.75 cc producing 726 hp, it was clocked at 432.7 km/h (268.9 mph) over both a mile and a kilometre. The V12 engine pushed the car's weight over the 750 kg Grand Prix limit, so this variant never appeared in championship racing.
The W125 made its competitive debut at the 1937 Tripoli Grand Prix in May, with Mercedes entering four cars. Hermann Lang won his first Grand Prix to give the W125 an immediate victory on its debut, Mercedes' first win over Auto Union since May 1936.
At the 1937 AVUS race, Mercedes entered a streamlined W125 capable of a top speed 25 km/h faster than the standard car, alongside a regular car driven by Richard Seaman as backup. The streamliner retired on lap three while leading with a gearbox failure; Seaman finished fifth in the standard car.
At the Eifelrennen at the Nurburgring, Mercedes entered five W125s, including one driven by Christian Kautz fitted with a new suction carburettor supercharger system. Caracciola and von Brauchitsch finished second and third. Following Seaman's success with the new supercharger at the Vanderbilt Cup in the United States, where he finished second, it was fitted to all W125s for subsequent races.
The European Championship rounds confirmed the car's superiority. In Germany, Caracciola took his first win of the year with von Brauchitsch second. At Monaco, the positions were reversed: von Brauchitsch won and Caracciola finished second, with Kautz third. At the Swiss Grand Prix, the W125 again filled the top three places — Caracciola winning, Lang second, and von Brauchitsch third. At the final championship round at the Livorno Circuit in Italy, Caracciola held off teammate Lang by just 0.4 seconds to clinch the 1937 European Championship. Von Brauchitsch, Kautz, and Lang finished second, third, and fourth in the overall Championship, meaning Mercedes drivers occupied all four top positions.
The season's final events included the Masaryk Grand Prix in Czechoslovakia, where Caracciola, von Brauchitsch, and Seaman filled the top three places. The 1937 Donington Grand Prix, held in England, proved less successful — Auto Union's Bernd Rosemeyer won, von Brauchitsch finished second, and Caracciola third, with the other two W125s retiring.
The race at Donington was marred when Hermann Lang crashed into spectators on lap five, resulting in twelve injuries and two deaths.
For 1938, the Grand Prix formula changed from a maximum car weight to a maximum engine capacity limit of 3,000 cc supercharged, and the W125 was no longer eligible without major modification. Mercedes-Benz developed a new car, the W154, and retired the W125 from competition after its single dominant season.
The W125's record stands as one of the most impressive in Grand Prix history. Powered by nearly 600 hp — a figure in road racing that would not be matched until turbocharged engines arrived in Formula One in the early 1980s — the car delivered the 1937 European Championship to Caracciola and placed Mercedes drivers in all four top positions in the standings. Uhlenhaut's methodical engineering approach, combining a stiffer chassis with more progressive suspension, had resolved precisely the handling problems that hampered the W25, making the W125 an object lesson in the power of systematic diagnosis and clean engineering.