To homologate the 205 T16 ("Turbo 16" in France) Group B rally car, Peugeot had to produce 200 road-going examples. According to the Group B regulations, these had to be based on a current production road car. Peugeot decided to base the Group B rally car on the two door version of the 205. The engine was based on the cast iron block of the Diesel version of the then new XU engine family, albeit with a specially developed 16-valve head. The gearbox came from the Citroen SM but was mounted transversely. The car had all wheel drive. The body was built by Heuliez, where standard three door bodyshells from the production line were delivered and heavily modified. Heuliez cut off the complete rear of the car and welded in a transverse firewall between the B-posts. The rear frame was then built in a mixture of sheet steel profiles and tubes. The front was modified in a similar way with a tube frame carrying the front suspension. The completed bodies were delivered to Simca (Talbot) for the 200-series production cars and to Peugeot Talbot Sport for the competition versions. All street versions (VINs P1 to P200) were left hand drive and identically kitted out in dark grey colour, except the first (VIN P1) that was painted white and carried all the competition cars’ decoration for demonstration purposes. The competition cars of the first evolution series (VIN C1 to C20) were built at the sport department Peugeot Talbot Sport and presented to the public at the same day as the standard street version. Later competition vehicles of the Evolution 2 series (VIN C201 to C220) were built differently as the rear spaceframe had no more sheet steel profiles in it but was completely made from tubes only.
Apart from the appearance, the road variants had practically nothing in common with the regular production model and shared the transverse mid-engine, four-wheel drive layout of the rally car, but had less than half the power; at around 200 PS (147 kW; 197 hp). The T was for Turbo; the 16 stands for 16 valves. Outwardly similar to a normal 205, the T16 had wider wheel arches, and the whole rear section lifted up to give access to the engine. Underneath, the complex drivetrain from the rally car was kept to abide by the Group B rules In addition to the Group B model, the lesser 205 GTI was also FIA approved for competition in the Group N and Group A categories.
Peugeot Talbot Sport's factory 205 T16s under Jean Todt were the most successful cars to compete in the last two years of the World Rally Championship's Group B era, winning the 1985 and 1986 Constructors' and Drivers' titles with Timo Salonen and Juha Kankkunen respectively against such notable competition from Audi, Lancia and Ford, with an Evolution 2 model being introduced for the latter of those two seasons.