rFactor is an evolution of F1 Challenge '99–'02 but was developed without the licensing of Formula One circuits and teams. The game was produced without ISI's longtime publishing partner, EA Sports, and featured exclusively custom tracks rather than licensed real-world locations. Because of this, the initial release included four fictitious circuits and approximately six vehicle classes, including two open-wheel and four sedan classes.
A central feature of rFactor was a rich interface for creating custom game content. This allowed amateurs to create additional vehicles and tracks for the simulator. In August 2006, ISI released a full update that introduced the 2006 BMW Sauber F1 and a manual. The update also included a driver-swapping feature, which allowed for driver changes during a race to enable events up to 24 hours in length, such as Le Mans.
The simulator includes an advanced tire model that simulates a non-linear tire use cycle based on temperature and wear, aiming to improve upon the Pacejka model used in previous simulators. Additionally, a feature was added to allow the artificial intelligence to "learn a track" to determine the ideal driving line. As of version 1.150, improvements to the AI led to faster driving styles.
rFactor also provides a plugin interface for third-party addons, which allows for the integration of features such as screen overlays or radio chatter. For online play, ISI handles the central server, which displays races and practice sessions through a web interface known as Racecast. The game server can be run from a dedicated program without the need to render graphics, supporting a mixture of human and AI-controlled vehicles.
In an early review of an rFactor preview published on AutoSimSport, Jon Denton stated: "What the tire model in rFactor does very well is that it models the relationship between slip angle, self aligning torque and cornering force - and it does this better than anything that has come before."
Writing for HonestGamers, Paul Josua noted: "It's a little unfair to hold rFactor's lack of accessibility against it as it has clearly set out to be a simulation racer. It does a fine job of that, but those who don't demand flawless simulation are better served looking elsewhere." rFactor was a finalist for the PC Gamer US "Best Racing Game 2005" award, which was won by GTR: FIA GT Racing.
ISI later developed rFactor 2, which features weather effects, reflections, and accurate shadows on various textures. The sequel was released on March 28, 2013.