In August 1985 the Celica was changed completely. It was an all-new vehicle with front wheel drive, a rounded, flowing body and new 2.0 L four-cylinder engines. The Celica was no longer built on the Toyota A platform, and instead realigned with the Toyota T platform underpinning the Toyota Corona. The Toyota A platform was now exclusive to the Toyota Supra. The coupe bodystyle in Japan was used only for the Corona coupe, sold only at Japanese Toyota dealerships Toyopet Store without the retractable headlights.[30] An optional feature only offered on the Corona coupe was four-wheel steering, not shared with the Celica during this generation, however, the turbocharged engine on the Celica was not installed in the Corona coupe.

Toyota introduced the "ultimate Celica", the GT-Four (ST165) onto the Japanese market in October 1986.[29] With full-time all-wheel drive, including an electronically controlled central locking differential, and a turbocharged version of the GT-S 2.0 L engine producing 190 hp (142 kW) (3S-GTE), it immediately took its place as the flagship of the Celica range and became the official Toyota rally car for all years of production. The GT-Four, with a revised viscous coupling central locking differential, began export in 1987 (1988 U.S. model year) and marketed in North America as the All-trac Turbo. It was rated at 190 bhp (142 kW; 193 PS) and 190 lb⋅ft (258 N⋅m). The All-trac system was also offered for a limited time on the Camry, and Corolla in North America without the turbo, as well as the normally aspirated and supercharged Previa.