The first generation 9-3, a substantially improved Saab 900 NG, was launched in 1998. Over 1,100 changes were made, including a revised suspension in an attempt to tighten up the handling characteristics of its predecessor, the Saab 900 (1993-1997 model). It featured slightly sleeker styling with some models sporting a black rear spoiler and removed Saab's trademark centrally-mounted "snow flap". It was available as a three or five-door hatchback, and as a two-door convertible.

Notable improvements over the Saab 900 NG were improved ride and handling and substantially improved crash-worthiness with standard side impact airbags with head protection and active headrests. The Saab 9-3 along with the Saab 9-5 and the Volvo S70 were the first cars in the world to earn the maximum score in a side impact augmented by a pole test based on Euro NCAP testing. The 9-3 continued the Saab safety tradition of performing an Elk Test.

It was also available with a new variant of the B204 engine (B204E), a low pressure turbo (LPT) engine based on the B204L used in the last generation Saab 900. It was the last small Saab to use the company's H engine. The first generation 9-3 was also the first Saab available with a diesel engine, an Opel sourced engine shared with the Opel Vectra.

A Saab innovation is the 'Night Panel', carried over from the Saab 900, which permits dousing of the instrument panel lighting, except for essential information, for less distraction when night driving.

A total of 326,370 first generation 9-3s were built.