TheT3, known as the T25 in Britain and Ireland, and Vanagon in Canada and the US, was built from 1979 to 1991  and was the third distinct generation of the Type 2. It featured an all-new mechanical design that matched the T2 in length and height, but was wider by 12 cm and considerably heavier. Additional interior space was created by lowering the engine compartment. The suspension and almost all mechanical components were completely changed, and frontal crash protection was greatly increased. The body was considerably squared-off, though retaining the overall impression of previous versions. Body variants remained the same as before.

Until 1982, the T3 was available with the same air-cooled engines as the T2. Starting in 1981, water-cooled diesel engines were available options and for 1984, water-cooled gasoline boxer engines replaced the previous air-cooled ones.