1978–1989: M division

The 1978 BMW M1 was BMW's first mid-engined sports car and was developed in conjunction with Lamborghini. It was also the first road car produced by BMW's motorsport division, BMW M. In 1980, the M division produced its first model based on a regular production vehicle, the E12 5 Series M535i. The M535i is the predecessor to the BMW M5, which was introduced in 1985 based on the E28 5 Series platform.

In 1983, BMW introduced its first diesel engine, the BMW M21. The first all-wheel drive BMW was the E30 3 Series 325iX model, which began production in 1985. The E30 became BMW's first model produced in a station wagon (estate) body style, when the "Touring" model was introduced in 1987.

The 1986 E32 7 Series 750i model was BMW's first car to use a V12 engine. The E32 was also the first sedan to be available with a long-wheelbase body style (badged "iL" or "Li").

The BMW M3 was introduced in 1985, as part of the E30 3 Series model range.