The 306 was the replacement for the Peugeot 309 (which had broken with Peugeot's normal ascending numbering system partly due to it being released before the older and larger Peugeot 305 was axed).
Mechanically, the 306 is virtually identical to the Citroën ZX, which was launched two years before the 306: both cars use the same floorpan and core structure. The 306, with its attractive Peugeot 205 derived Pininfarina styling, was a more successful car than its twin. The Citroen Berlingo and Peugeot Partner were also built on the same platform. The chassis used by the 306 and ZX was also used in the ZX's replacement, the Citroën Xsara. The sharing of platforms between Peugeot and Citroën has been parent company PSA Peugeot Citroën policy since the late 1970s, after the Peugeot takeover of the then bankrupt Citroen in the wake of the 1974 oil crisis. The first car being the Peugeot 104 based Citroen Visa and Citroën LNA. The policy continues today with the Peugeot 107, Citroen C1 and Toyota Aygo.
The 306 arrived in March 1993 as a 3- and 5-door hatchback, with saloon, cabriolet and estate models being introduced later. The estate version was branded as the sw, for "station wagon". The Phase 1 model was known as the N3 in Australia, and introduced in 1994.
The initial petrol engines used were proven four-cylinder units, which had gained a solid reputation in Peugeot models such as the 205, 309 and 405. At first, all mainstream models were powered by derivatives of the TU series 8-valve engine, in 1.1, 1.4 and 1.6 litre guises. The 1.1 was dropped quickly, but the 1.4 and particularly the 1.6 variants sold well; the latter offering a good balance between performance and economy.
Three larger-capacity units were available, but restricted to automatic and performance models. These engines were developments of the larger XU series units which had been used in the 205 GTi 1.9, and larger 405 models. A 1.8 litre version powered cars with both manual (not many 1.8 manuals were produced) and automatic transmission; while two versions of the 2.0 litre engine in 8- and 16-valve guises powered the XSi and S16 models respectively. In Australia, the only engines available were the 1.8 and 2.0L engines.
Peugeot had an excellent reputation for its diesel engines, and the 306 was originally offered with the XUD series diesel engine in both normally-aspirated and turbocharged forms. This engine was initially a 1.8 litre unit, but its capacity was soon enlarged to 1.9 litres. The turbocharged version quickly gained a reputation for being a good match for the exceptional handling of the 306. Not only did its outright performance match many similarly-sized petrol cars – almost certainly a first for an affordable mainstream diesel – but the carefully-designed installation ensured its considerable extra weight did not upset the car's handling. The Indirect Injection XUD Diesel is popular for conversion to run on vegetable oil.
Trim levels were XN, XL, XR, XT and XS; XN being the most basic, and XT the highest specification. The XR and XT were available in 5-door only, with the XN and XL available in 3-door too. The D-Turbo and XSi were available in both 3- and 5-door, the XS and S16 only available in 3-door. There were no longer "X/G" designations ("X" indicating a 3-door, "G" indicating a 5-door). Sedan specification was marked as SN, SL, SR, and ST. A diesel model could be identified with the addition of "d" after the spec level, and a turbodiesel with the addition of "dt". There were special edition versions too, badged "Alpine" from 1994. (3-door only).
Although the 306's reputation for dynamic excellence was attracting buyers, its growing reputation for high maintenance costs, lacklustre dealers, and suspect build quality were earning it some bad press.
Despite Peugeot's efforts, the car placed poorly in a variety of ownership and customer satisfaction surveys of the time, such as the annual JD Power survey which was run in association with the BBC Top Gear television programme. Nevertheless the car featured in Top 10 best selling cars in Britain from 1994 to 1998, and only narrowly missing out on the top 10 during its final three years on sale.
Sales in France and most of the rest of Europe were also strong.
The hatchback 306 was discontinued in 2001 to make way for its replacement, the Peugeot 307. The cabriolet and estate variants both remained on sale until 2002. The slow-selling and questionably-styled saloon was axed from the UK in 1999, however was still available in the rest of europe until 2002.