"The first 4-wheel drive car in the Grp B era. Not the best handling but a fire spitting, tire shredding monster."
Walter Rohrl

In 1977 Ferdinand Piech (grandson of Ferdinand Porsche) Audi's Technical Development board member, had the objective to upgrade the position of the Audi brand through the introduction of innovative technology: "Vorsprung durch Technik". As an experiment, Audi engineer Jorg Bensinger developed an AWD arrangement for the Audi Iltis. Testing was not only promising but impressive. Audi's other board members wanted to promote a more stately model thus the Iltis guts into an Audi 80 and the prototype A1 (standing for "All-Wheel-Drive 1" was born. In September 1977 Audi gave engineers the green light to begin offical work on the A1 project (Development Code 262). Over the next few months the design was improved with the addition of a center differential among other changes. With only 30 minutes test-driving the car, the Finnish rally star Hannu Mikkola was convinced: "I have just experienced a convincing view of the future. Quattro will change the rally scene once and for all."

The Quattro won its first rally on its first outing, the Austrian round of the European championship in 1981: the four-wheel-drive experiment was an instant success. The Quattro went on to win a couple rounds of the world rally championship, and Audi gained additional exposure when Michele Mouton won the 1981 San Remo rally, the first woman to win at the international level. The 1982 season looked set to be an Audi tour de force.

While the Audi was clearly the fastest and one of the most revolutionary rally cars in some time, it did have a number of shortcomings. The Quattro was rather heavy, its front-engine, monocoque chassis gave the car clumsy and unwieldy handling characteristics, and the car had problems with mechanical reliability. The car did win the 1982 championship for constructors, but Walter Rohrl took his first win of the year and the championship on the final event, the Ivory Coast rally, after Michele Mouton's Quattro suffered a broken transmission.

In 1984 Audi launched the "Sport Quattro" car which dominated races in Monte Carlo and Sweden with Audi taking all podium finishes but succumbed to problems further into World Rally Championship contention. After another season mired in mediocre finishes, Walter Rohrl finished the season in his Sport Quattro S1 and helped place Audi second in the manufacturer's points. Audi also received rally honors in the Hong Kong to Beijing rally in that same year. Michele Mouton, the first female WRC driver to win a championship and a driver for Audi, took the Sport Quattro S1, now simply called the S1 and raced in the Pikes Peak Hill Climb. The climb race pits a driver and car to drive up a 4,302 meter high mountain in Colorado and in 1985, Michele Mouton set a new record of 11:25.39 and being the first woman to set a Pikes Peak record. In 1986, Audi formally left international rally racing following the death in Portugal of driver Joaquim Santos in his RS200. Joaquim Santos avoided hitting spectators on one side of the road, and ended up hitting spectators on the other side.

The Sport Quattro was Audi's first real Group B car. The chassis was much different as compared to the original. Note that 320mm has been chopped out of the car between the door and rear wheel. Audi also wanted to improve weight balance by moving the batteries, oil coolers and radiators into the rear of the car. The end result was a 52% front/48% rear weight balance, but still with a high polar moment (weight far from the center of gravity).

The 1984 season was Audi's most successful year in rallying. Stig Blomqvist's sideways driving style plus the introduction of the short-wheelbase, more powerful (450+ hp) and more advanced (six-speed transmission, kevlar bodiwork) Sport Quattro combined to take both titles for the 1984 season. However, the 1984 season saw a new challenger to Audi's crown: Peugeot launched their brand new 205 T16 in Corsica for the 1984 Tour de Corse rally. The new 205 differed from the Quattro in several key respects: it was rear-engined, it had a space frame, and it was a generally smaller car with less weight. Peugeot driver Ari Vatanen nearly won the 205's first rally, except a crash prematurely ended his rally. The Peugeot caused enough concern that the Audi team managers sent messages back to the engineers in Ingolstadt, reminding the engineers to keep up development, and not to be complacent with the current success.

The radical Sport Quattro S1, introduced at the 1000 Lakes rally in 1985, proved to the rally community that Audi was very serious in its attempt to regain its previous form. The S1 had more power than any other rally car in history, reaching over 600 horsepower in 1986, and it had huge wings to aid with traction on faster stages. Faced with ever-increasing competition, the S1 only managed a single victory, on the San Remo rally in 1985. The Quattro in its various iterations competed for four and a half years, winning four championships, and changing the face of rallying forever.