At the 2003 Geneva Motor Show, Audi launched the second-generation of the A3, the Typ 8P, designed by Gary Telaak during 2000 (however, the final design was frozen in 2001). Originally launched only as a three-door hatchback with four-cylinder engines, it featured a new automobile platform (the PQ35 platform), a redesigned and more spacious interior, new petrol engines with Fuel Stratified Injection (FSI), and standard six-speed manual gearboxes (except on the base 1.6).

In mid-2003, the line was updated with two sports-oriented models, a 2.0 Turbo-FSI version rated 200 PS (147 kW; 197 hp), and a 3.2 L VR6 engine (for the first time) with 250 PS (184 kW; 247 hp). Haldex Traction-based quattro on-demand four-wheel drive, and the S-Tronic semi-auto gearbox were introduced as options (quattro is standard on the VR6) on every model with engine over 140 PS (103 kW; 138 hp).

In 2005, the "S line" trim level, offering new decorative elements, became available and the three-door A3 received the same front end styling features as the Sportback model. For the first time, the A3 became available in the North American market, exclusively with the Sportback body, with the base 2.0 inline-four TFSI introduced in 2005 as a 2006 model, and the 3.2 VR6 quattro following.