The 306 was first seen in its pre-production stage in 1992, but was released 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.
A bewildering array of different model types were offered during the life of the Phase 1 model, including Genoa, XSS, X, XT, XRdt and Xd. Later were added various 'performance' models, such as the S16, XSi and GTI-6 (petrol) and the D-Turbo S (diesel).
All variants of the 306, with the exception of the GTI-6 and cabriolet models, were priced very competitively.
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 1.6litre 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 1.8litre version powered cars with both manual (not many 1.8 manuals were produced) and automatic transmission; while two versions of the 2.0litre 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 1.8litre unit, but its capacity was soon enlarged to 1.9litres. 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.