For the 1934 season, the sport's governing body AIACR introduced a new formula limited primarily by a maximum car weight of 750 kg — considerably less than that of Daimler's previous racing car, the outdated seven-litre Mercedes-Benz SSK. That range of cars had been developed in the 1920s by Ferdinand Porsche, who by 1933 was operating independently and proposed his P-Wagen racing concept to Germany's new chancellor, Adolf Hitler. Hitler decided to support both Porsche's project (taken up by Auto Union) and Mercedes-Benz, whose company had accumulated more than a quarter century of major international racing experience.
Despite halving both the weight and engine displacement compared to the SSK, Daimler's engineers quickly extracted more power from the supercharged straight-eight M25 engine than the previous car's maximum of 300 hp. The W25 was developed during 1933, with its first competitive appearance planned for the 1934 Avusrennen in Berlin on 27 May. Mercedes arrived at the event but withdrew from the race after encountering carburettor or fuel pump problems in practice.
The W25's debut victory came a week after the Avus withdrawal, at the Nurburgring Eifelrennen, where Manfred von Brauchitsch won. The Eifelrennen has often been cited as the moment the Silver Arrows legend began; however, historical research has since established that as early as 1932 at the AVUS, von Brauchitsch had raced an SSKL covered with streamlined aluminium bodywork, which press of the time already described as a silver arrow.
Through 1934, the W25 won four major races — the Eifelrennen, Coppa Acerbo, and the Spanish and Italian Grands Prix — compared to three victories for the rival Auto Union (at the German, Swiss, and Czechoslovak Grands Prix). The German cars also claimed hillclimb victories, though these events were usually dominated by the superior traction of Auto Union's mid-engined car driven by Hans Stuck. Two events on the soil of World War I adversaries proved difficult: the 1934 French Grand Prix near Paris ended with neither German team finishing, and at the Belgian Grand Prix on the Circuit de Spa-Francorchamps, Belgian customs officials demanded heavy duty charges on the alcohol-containing fuel used by the supercharged German engines — both teams withdrew.
In 1935, the European Championship was resumed and Rudolf Caracciola clinched the title for Mercedes, winning three of the five championship events. Luigi Fagioli also contributed victories, with the W25 (now also designated W25B) claiming nine Grand Prix wins overall. This year's version featured an enlarged engine producing well over 400 hp.
The most famous result of 1935 went against the German teams: Tazio Nuvolari's victory in the German Grand Prix at the Nurburgring in an Alfa Romeo was the only win for a non-German car in a European Championship round from 1935 through 1939.
As engine capacities grew, the M25 became unreliable when enlarged to 4.7 litres and 490 hp. A V12 engine was tested but proved too heavy; to accommodate it, the chassis was shortened and lightened (the W25K, "K" for kurz, meaning short), but this worsened handling. In 1936, the W25K was frequently beaten by Auto Union's Bernd Rosemeyer. Only Caracciola could take two wins for Mercedes that year, one at the wet 1936 Monaco Grand Prix on its twisting circuit. Mercedes withdrew from the remainder of the 1936 season to focus on development.
Young engineer Rudolf Uhlenhaut, tasked with understanding the car's shortcomings, drove the W25 himself extensively and concluded that it suffered from suspension that was too stiff within a chassis that was itself too flexible. This diagnosis directly guided the design of the successor car.
For the 1937 Avusrennen, two streamlined V12-powered W25K variants were entered, as weight and handling were of little concern at the AVUS circuit with its long straights and banked north turn. Streamlined W25 derivatives were also used for land speed record attempts.
Uhlenhaut's work on the W25's deficiencies led directly to the Mercedes-Benz W125, developed for 1937 with a stiffer chassis, more supple suspension, and an even more powerful engine. The W25 had demonstrated that government-backed German engineering could dominate Grand Prix racing, setting a pattern that would continue through the rest of the pre-war era.
In a notable piece of cultural legacy, as part of a partnership between Mercedes-Benz and Nintendo, a W25 Silver Arrow appeared as a playable vehicle in the Wii U game Mario Kart 8 and its Nintendo Switch port Mario Kart 8 Deluxe, added in a downloadable update on 27 August 2014.