The original A3 (or Typ 8L) was introduced in the European market in 1996, marking Audi's return to the production of smaller cars following the demise of the Audi 50 in 1978. This was the first Volkswagen Group model to use the "PQ34" or "A4" platform, bearing a natural close resemblance to its contemporary, the Volkswagen Golf Mk4, which arrived a year later. Within three years, the platform had spawned a total of no less than seven cars.

The car was initially available only with a three-door hatchback body, in order to present a more sporty image than the Golf, in both front and four-wheel drive. All engines were an inline four-cylinder configuration, and were transversely mounted. After the A4, the Audi A3 was the second model in the Audi lineup to use five valves per cylinder.

The United Kingdom market first received the Audi A3 in November 1996.

In 1999, Audi expanded the range with the introduction of more powerful versions: a 1.8 Turbo rated 180 PS (132 kW; 178 hp), and a 1.9 TDI diesel engine with Unit Injector "Pumpe Düse" (PD) technology and variable geometry turbocharger. The four-wheel-drive A3 1.8T quattro used either the 150 PS (110 kW; 148 hp) or 180 PS (130 kW; 180 hp) engine, and the same Haldex Traction-based on-demand four-wheel-drive system as the Audi S3 and the Audi TT. Also in 1999, Audi also introduced a five-door body.

In late 2000, the A3 range was revised with new headlights and rear lamps, other minor cosmetic changes, an improved interior, and the introduction of a six-speed manual gearbox, on the 180 PS (132 kW; 178 hp) 1.8 Turbo and the brand new 130 PS (96 kW; 128 hp) 1.9 TDI.

Audi's Electronic Stability Programme (ESP), traction-control and brake force distribution computer became standard equipment in some countries.

Although the first-generation Audi A3 was replaced in Europe in 2003, the first generation model continued to be sold in some markets. Production of the first generation model stopped in Brazil in 2006.