Audi introduced the S8 4.2 quattro into the European market in 1996. The S8 followed the naming convention of other high-performance Audi "S" models such as the Audi A6-derived S6 and was similar in vein of Mercedes-Benz AMG models. In markets such as the UK, the S8 was only available with the automatic transmission. Cosmetically, Audi differentiated the S8 from the A8 with solid aluminium alloy door mirror housings, chrome-effect beltline and lower front grille trim, and polished twin exhaust pipes, along with subtle "S8" badging. 14-way power adjustable and heated sports front seats with memory function were fitted as were heated rear seats. Standard alloy wheels were 18-inch cast aluminium alloy "Avus" six-spoke style. After the 1999 facelift, 20-inch polished nine-spoke RS wheels became an option. In 2002, 18-inch nine-spoke RS wheels became a no-cost option.

At the same time of the A8's facelift in late 1999, the S8 received the same cosmetic upgrades. This update marked the release of the S8 to the North American market. Production of the D2 series S8 ended in September 2002.

The D2 series S8 featured an uprated, 250 kW (335 hp) version of the 4.2-litre V8 with four valves per cylinder. From late 1999, Audi increased this to five valves per cylinder with power increased to 265 kilowatts (355 hp) and 430 newton metres (317 lb·ft). From launch in 1996, European-market models came standard with a six-speed manual transmission. A sports-recalibrated version of the ZF 5HP24 five-speed tiptronic automatic, featuring "Dynamic Shift Programme" (DSP) was released a year later and was the only transmission available in most other markets.

A retuned, 20-millimetre (0.8 in) lowered sports suspension included a 30 percent stiffer spring rate and 40 percent more compression damping in the shock absorbers. Speed-sensitive "servotronic" power assisted steering was also standard.

The brakes featured Bosch 5.3 anti-lock braking system (ABS), with electronic brakeforce distribution (EBD), and worked radially ventilated front discs. From 2002, an upgraded Bosch 5.7 electronic stability programme became standard fitment.