Fourth generation / T160 Series (1986-1989)

For 1986, the Celica was changed completely. It was an all-new vehicle with front wheel drive, a rounded, flowing body and new 2.0 L four-cylinder engines. In North America, the Celica was again available in ST, GT and GT-S trim as either coupe or liftback models, with the GT being offered as a soft-top convertible as well. ST and GT came with a SOHC 8 valve, 2.0 L, 97 hp 2S-E engine from the Camry, but quickly changed to an all new DOHC 116 hp engine 3S-FE for the 1987 model year, also shared with the Camry. The GT-S was given a 135 hp version of the DOHC 2.0 L engine (3S-GE) featuring T-VIS.

For the Japanese market, Toyota introduced the "ultimate Celica": the GT-Four (ST165) in October 1986. With full-time all wheel drive, including an electronically controlled central locking differential, and a turbocharged version of the GT-S 2.0 L engine producing 190 hp (3S-GTE), it immediately took its place as the flagship of the Celica range, and became the official Toyota rally car for all years of production. The GT-Four, with a revised viscous coupling central locking differential, began exporting for the 1988 model year and marketed in North America as the All-trac Turbo. The All-trac system also was offered for a limited time on the Camry, Previa, and Corolla in North America.

The ST165 chassis design was already quite acclaimed in its time. http://autospeed.com/cms/A_1820/article.html Toyota chose not to make any drastic suspension changes for the AWD GT4; The front suspension comprises MacPherson struts with an anti-swaybar and strut tower brace, while the rear employs struts with a trailing link and twin lateral links per side plus an anti-swaybar.^[3]

In 1988, the ST163 with 4S-Fi engine was added into the Japanese line up in ST and SX trim levels. The 3S-FE powered 2.0 Z-R was positioned between SX and GT-R. However, in Australia the 2.0 SX with 3S-GE engine was the top of the line.

The ST165 GT-Four made its World Rally debut in the 1988 Tour de Corse and finished 6th. The first victory came in 1988 Cyprus (non-WRC), and the first WRC victory in 1989 Rally Australia.