Arriving in late 1990, the E36 broke away from boxy angles in favor of a sleek, aerodynamic profile with glass-covered headlamps and a wedge-shaped beltline. It introduced the multi-link 'Z-axle' rear suspension that dramatically upgraded high-speed stability and handling precision.

The E36 lineup grew to include sedan, coupe, convertible, Touring wagon, and the 3-door Compact hatchback. Equipped with responsive M50/M52 inline-six engines with VANOS variable valve timing, the E36 dominated comparison tests throughout the nineties.