The Ford Mustang was introduced in 1964 and created a new market segment called the 'Pony Car.' For 1966, only minor styling changes were made, as the Mustang was still enjoying strong sales. For 1967, Ford reluctantly opted to re-style its class-leading Mustang as they were faced with increasing competition from other marques, including the Chevrolet Camaro and Dodge Charger. The 1967 Mustang became more visually imposing than its predecessor with its jutting grille, widened sheet metal, and concave rear panel. With more engine bay space, the Mustang was now able to accommodate larger engines. Thus, the 1967 Mustang was the first to be fitted with a 'big block' V8, the 390 'S' code. The base engine was the 200 cubic-inch six-cylinder offering 120 horsepower. Depending on the configuration, the 289 overhead valve V8 produced 200 to 271 horsepower. New options included the SelectShift Cruise-O-Matic. The hardtop coupe body styles were the most popular, with 356,271 examples sold. The fastback coupe found 71,042 willing buyers while 44,808 selected the convertible. Prices remained similar to the prior years.

Standard equipment on the 1967 Mustang included wheel covers, carpeting, floor-mounted shift, front bucket seats, heater, cigarette lighter, and vinyl interior trim.

The interior and cargo space increased and exterior trim changes included side scoops, square rear-view mirrors, and concave taillights. Hardtop body styles continued to wear the chrome quarter trim caps from the 1965 and 1966 Mustang but were now painted to match the interior. The embossed running horse motif on the seatbacks (also known as the 'pony interior') was replaced with a new deluxe interior package offered in special color options, woodgrain dash trim or brushed aluminum (from August 1966), special door panels, stainless steel-trimmed seat back shells, and seat buttons. The deluxe steering wheel from the 1965 and 1966 model was now optional and could also be ordered with the standard interior.