The intended replacement for the Series XJ models was code-named XJ40, and development on the all-new car began in the early 1970s (with small scale models being built as early as 1972). The project suffered a number of delays due to problems at parent company British Leyland and events such as the 1973 oil crisis. The XJ40 was finally unveiled on 8 October 1986 at the British International Motor Show.

With the XJ40, Jaguar began to place more emphasis on build quality as well as simplification of the XJ's build process. With 25% fewer body panel pressings required versus the outgoing model, the new process also saved weight, increased the stiffness of the chassis, and reduced cabin noise.   The new platform came with significantly different styling, which was more squared-off and angular than the outgoing Series III. Individual round headlamps were replaced with rectangular units on the higher-specification cars, either 390mm millimetric tyres or 15" wheels with 225/65R15 Pirelli Cinturato P5 tyres and all models came with only a single, wide-sweeping windshield wiper. The interior received several modernisations such as the switch to a digital instrument cluster, although this was eventually discontinued for the 1990 model year in favour of analogue instruments.