To homologate the T16 for Group B competition, Peugeot was required to produce at least 200 road-going examples. These were bodied by specialist coachbuilder Heuliez, where standard three-door 205 bodyshells were radically rebuilt: the entire rear of the car was removed and a transverse firewall was welded between the B-pillars, replaced by a new rear frame built from a combination of sheet steel profiles and tubular steel sections. The front was similarly restructured with a tube frame supporting the front suspension. The completed bodies went to Simca (Talbot) for street-car assembly and to Peugeot Talbot Sport for the competition versions.
The engine was a 1,775 cc unit based on the cast iron block of the then-new XU engine family's diesel variant, fitted with a specially developed 16-valve DOHC cylinder head. This unit was moved from its conventional front position to a rear-mid location, transforming the 205 from a front-engine, front-wheel-drive supermini into a rear-mid engine, four-wheel-drive competition car. The gearbox came from the Citroen SM, mounted transversely. The name T16 denoted the Turbo (supplied by KKK) and 16-valve configuration; Bosch K-Jetronic fuel injection and a compression ratio of 6.5:1 completed the specification.
The 200 homologation road cars (VINs P1 to P200) were all left-hand drive and finished identically in dark grey, with the exception of P1, painted white with full competition decoration for demonstration purposes. Road car power was approximately 200 PS, well under half the output of the competition version. The first batch of 20 competition cars (C1 to C20) was built at Peugeot Talbot Sport alongside the street cars.
The T16 made its WRC debut in 1984, competing in a full season that established the car's pace and built team experience. Peugeot Talbot Sport worked methodically under Jean Todt to optimise the car across varying conditions. The 1985 season brought the championship breakthrough: Timo Salonen drove the T16 to the WRC Drivers' title, while Peugeot secured the Manufacturers' Championship, defeating Audi, Lancia, and Ford across the full calendar. The car proved particularly effective on loose surfaces and in high-power environments, where its four-wheel-drive traction and turbo output were decisive advantages.
For the 1986 season, Peugeot introduced the Evolution 2 variant of the T16, distinguishable by a rear spaceframe constructed entirely of tubes rather than the sheet steel and tube combination of the original competition cars (VINs C201 onwards). The Evolution 2 delivered the 1986 Constructors' and Drivers' titles, with Juha Kankkunen winning the drivers' crown.
The 205 T16 represented the peak of what a Group B rally car could achieve on the road-car-based formula. Together with the Lancia Delta S4 and the Audi Sport Quattro S1 E2, it defined the extreme performance envelope of Group B before the category was cancelled by the FIA following a series of fatal accidents during 1986. The chassis and engine architecture of the T16 also underpinned the Peugeot Quasar concept car. Peugeot Talbot Sport's methods and the T16 itself directly shaped the team's subsequent motorsport programmes, with Jean Todt later leading Ferrari's Formula One operations.