Jean Todt, a World Rally Championship co-driver who had competed alongside Talbot driver Guy Frequelin, was asked by Peugeot to establish a sporting department for the PSA Peugeot Citroen group in 1981. The resulting Peugeot Talbot Sport operation debuted its Group B Peugeot 205 Turbo 16 in the 1984 WRC season, taking its first victory at Rally Finland with Ari Vatanen.
In 1985, Vatanen and Timo Salonen won seven of twelve rounds to deliver Peugeot its first manufacturers' title and Salonen the drivers' championship. Vatanen suffered a severe accident in Argentina that year and was replaced by Juha Kankkunen for 1986, who gave the team a second consecutive manufacturers' crown. The FIA banned Group B for 1987 following the fatal accident of Henri Toivonen, ending Peugeot's most dominant rally phase.
Peugeot pivoted to rally raid, winning the Dakar Rally with the 205 in 1987 and 1988, then with the 405 in 1989 and 1990. The team also competed at Pikes Peak in 1987, 1988, and 1989, winning the latter two appearances.
Peugeot Talbot Sport launched the 905 project in November 1988, entering sports prototype competition at the tail end of the 1990 World Sportscar Championship season. In 1992, the 905 won the 24 Hours of Le Mans with Derek Warwick, Yannick Dalmas, and Mark Blundell, and took the 1992 World Sportscar Championship with Warwick, Dalmas, Philippe Alliot, and Mauro Baldi. Peugeot also recorded a 1-2-3 at the 1993 Le Mans, with Eric Helary, Christophe Bouchut, and Geoff Brabham driving the winning car. Following those victories, Peugeot Talbot Sport withdrew from sports car racing. Jean Todt departed to join Scuderia Ferrari.
Peugeot entered Formula One as an engine supplier in 1994 with a 3.5-litre V10. McLaren used the engine that year but the relationship ended after poor reliability yielded eight podiums and zero victories across 17 DNFs. Jordan Grand Prix ran Peugeot engines from 1995 to 1997, scoring five podiums including a double podium at the 1995 Canadian Grand Prix with Eddie Irvine second and Rubens Barrichello third. Peugeot then supplied Prost Grand Prix from 1998 to 2000 in an effort to create an all-French pairing, but the partnership was disastrous: Prost scored only one point in 1998, nine in 1999, and none in 2000. Peugeot withdrew from Formula One after 115 Grand Prix entries with fourteen total podiums and no victories. The engines were subsequently purchased by the Asiatech consortium and used by Arrows in 2001 and Minardi in 2002.
In 1999, Peugeot Sport returned to the WRC with the Peugeot 206 WRC under director Corrado Provera. Marcus Gronholm gave the car its first victory at Rally Sweden in 2000, and went on to win the drivers' championship that year. Gilles Panizzi took wins in Corsica and Sanremo as Peugeot claimed the manufacturers' title. The team retained both championships in 2001 and 2002, with Gronholm winning a second drivers' title in 2002 alongside Richard Burns, whom Peugeot signed from Subaru. A third consecutive manufacturers' title followed. Gronholm secured a third manufacturers' title for Peugeot in 2003 with Marlboro as title sponsor, before Citroen ended the run in 2004.
Peugeot introduced the 307 WRC in 2004, but the car was less competitive and Gronholm's only win that year came in Finland. At the end of 2005, PSA Peugeot Citroen withdrew both Peugeot and Citroen from the WRC; Citroen returned in 2007, but Peugeot did not. The team subsequently competed in the Intercontinental Rally Challenge with the 207 S2000, with Kris Meeke winning the IRC drivers' title in 2009.
Under new director Michel Barge, Peugeot Sport returned to endurance racing in 2007 with the Peugeot 908 HDi FAP diesel prototype. The car made its debut at the 2007 1000km of Monza, where Marc Gene and Nicolas Minassian took victory. Stephane Sarrazin took pole for the 2007 Le Mans, where the team finished second to Audi. At the 2009 24 Hours of Le Mans, Sarrazin claimed a third consecutive pole, and the team delivered its first Le Mans win since 1993, with the car of David Brabham, Gene, and Alexander Wurz taking victory. Peugeot scored a 1-2 at the 2010 12 Hours of Sebring but suffered reliability failures at Le Mans that year. Peugeot came within 13 seconds of defeating the sole surviving Audi at the 2011 Le Mans before announcing withdrawal from sportscar racing in January 2012.
In November 2019, Peugeot announced a return to the FIA World Endurance Championship in the Hypercar class for 2022. The 9X8 hypercar was developed with aerodynamics in partnership with Ligier and powered by a Peugeot Hybrid4 powertrain. The driver lineup for the WEC 2022 season included Loic Duval, Jean-Eric Vergne, Mikkel Jensen, Gustavo Menezes, Paul Di Resta, and Kevin Magnussen, with James Rossiter later promoted to full-time driver. Peugeot earned its first WEC podium finish in the Hypercar era at the 2023 6 Hours of Monza.
In 2013, Peugeot Sport and Sebastien Loeb united to attack the Pikes Peak International Hill Climb record. The 208 T16, a lightweight 875 kg vehicle using the rear wing from the 908 and a 3.2-litre twin-turbo V6 producing 875 bhp, was tested at Mont Ventoux in April 2013. On 30 June 2013, Loeb demolished the standing record by over a minute and a half, recording an overall time of 8 minutes 13.878 seconds.