The E36/5 Compact was first introduced in Europe in 1993 with the 316i. In 1994 the 318ti was introduced and wasn't imported to North America until 1995. The Compact was available as a 316i, 316g, 318ti, 318tds and in 1997, a 323ti. Only the 318ti made it to the shores of North America. The final production year of the E36/5 Compact was 2000.

The major difference between the other 3-Series BMWs and the Compact is in the body style, dash and rear suspension. The Compact is available only as a three-door hatchback, while the other models came in either coupe, sedan, convertible or touring. The dash is less complex than a standard 3-Series, with simplified HVAC controls and instrument panel. The big mechanical difference is that the Compact used a rear suspension very simliar to the E30 model 3-Series. It is a semi-trailing arm type suspension rather than the more complex and larger multi-link suspension used on the rest of the E36 lineup. Also, the early Compacts used solid rotors with four-wheel disk brakes rather than the front ventilated brakes of the other four-cylinder 3-Series machines and some European Compacts relied on brake drums for the rear. There are a couple of other minor differences, such as a smaller toolkit and lack of a glovebox flashlight, but, in general, the Compact is pretty much the same as the rest of the 3-Series.

Each market had variations of each model. In the United States there were three models to choose from in the 318ti line. The Base ti was the entry-level model. Then there were two packages that could be added to the ti:  the Active or the Sport. These packages added various features, such as larger wheels and tires, and optional leather interior, to increase the comfort and handling of the Base model. Also in 1995, the limited edition 318ti Club Sport was produced. For 1996 the Club Sport disappeared, though most of the body and suspension pieces were made standard on the Sport model. It was in 1996 that the canvas top, California Edition, had its limited run. For 1997 the Base, Active and Sport models continued, while the California Edition was discontinued in favor of having the canvas sunroof as an option on the other models.

Along with the different packages, a range of engines from diesel to gas was offered. But it wasn't until 1998 that we saw a 6 cylinder in any Compact from the factory. Rumors circulated that BMWNA would bring the 323ti to the U.S. shores, but that never materialized. Instead, only the 1999 Sport was available in the U.S.