From the onset of production, Ford's division chief Lee Iacocca believed that the Mustang needed an image boost, a job that was given to Carroll Shelby. Mr. Shelby was a former race car driver and nascent sports car manufacturer, who gained even more notoriety and credibility with the iconic Ford-powered AC Shelby Cobra and his involvement with Ford's GT40 LeMans project. He was tasked with transforming the Mustang into a machine capable of winning the Sports Car Club of America's national B-Production Championship Series. In early 1965, a new competition breed of Mustangs came into existence, having been created at the Shelby-American shop in Los Angeles and topped off with Shelby badges and trademarks like the Cobra's own logo and named the Shelby GT350. Throughout the remainder of the decade, an increasing number of specially-prepared Mustangs were built to varying specifications and purposes.

The Mustang was transformed from a docile pony car to thundering thoroughbreds, albeit often ill-suited for everyday driving. To capitalize on this 'missed market,' Ford and Shelby designed a car that was more civilized. The original pony car was undergoing a revamp that finally gave it room for big-block power, and with the introduction of the 1967 models, regular Mustangs could be installed with the 390 cubic-inch four-barrel V8 offering 320 horsepower. Shelby went even further by adding a new model called the GT500. The GT350 continued to use the 289 CID V8 with 306 bhp, while the GT500 received a reworked 428 CID 'Police Interceptor' V8. Additional modifications included a cast-aluminum medium-rise intake manifold from Ford's 427, twin 600-Cfm Holley four-barrel carburetors, and other tweaks for a conservative rating of 355 horsepower. A few 1967 Shelby GT500s were fitted with Ford's near race-ready 427 CID V8 during manufacture or through dealer service departments.

The 'Cobra' tag was dropped for 1969, and once again was marketed simply as the Shelby GT350 and Shelby GT500. 1970 was the swan song for Shelby's GT350 and GT50, which were carried over from 1969. The 1970 Shelbys are actually left-over 1969 models that were updated for 1970 with black hood stripes, a front spoiler and an updated serial number (under FBI supervision). A total of 789 examples were re-VIN'd, with 380 converted into 1970 GT500 fastbacks. These final-edition Shelby GTs received a thoroughly restyled front end with a full-width grille, single headlamps and a chrome surround, the lower portion serving as the front bumper. 1969 and 1970 models differed the most from regular Mustangs by their fiberglass body components, including the entire front end.

NACA-style ducting on the hood funneled fresh air to the engine, and intake scoops on the fenders provided cooling air to the front brakes. In the back were an integrated spoiler, Thunderbird tail lights and center-mounted exhaust outlets. Under the bonnet was Ford's 428 Cobra Jet Ram Air engine with larger valve heads, competition 427's intake manifold, Holley four-barrel carburetor and an oil-pan windage tray. It was rated at 335 horsepower and backed by Ford's heavy-duty C6 Cruise-O-Matic or a Toploader 4-speed manual transmission and heavy-duty 9-inch rear end with Traction-Lok differential. Standard equipment included power steering and four-wheel disc brakes, along with the Deluxe Interior Decor group that added high-back bucket seats, a custom console with Stewart Warner gauges, 8,000 RPM tachometer, AM radio, deluxe seat belts and a roll bar with inertia-reel shoulder belts.