Along the heels of a successful and ongoing production run of the BMW X5, BMW decided in the early millennium that it wanted to compete with the likes of the Land Rover Freelander and other small SUVs just as the X5 had previously done so well in its respective classes. Thus the X3 (internally known as E83), was born.

What thus emerged was a concept unveiled at the Detroit Auto Show in 2003. Dubbed the xActivity, BMW previewed to the public for the first time what a smaller SAV based on a 3 Series platform would look like. The concept had no windows, for the most part no roof, and a sleek futuristic interior. Only the basic shape of the car would emerge as the BMW X3.

Just as BMW used many parts from the E39 5 Series parts bin in the making of the X5, the same occurred in the X3′s development, whereby BMW engineers reused 3 Series parts. In fact, complete sets of parts came straight out of the E46 330xi unchanged in the X3 (e.g. rear suspension).

Austrian automotive contractor Magna Steyr of Graz, Austria performed additional development work and has been contracted to manufacture all first-generation X3s.