Launched in August 1978, the Tercel and the Corsa were Toyota's first family cars with a front-engine, front-wheel-drive (FF) layout. The two were sister cars, with the difference that the Tercel was marketed only through the Corolla and Diesel channels, while the Corsa was sold exclusively through the Toyopet channel. The three available body types included 2- and 4-door notchback sedans and a 2-door sedan with a glass hatch. Although their body dimensions were a size smaller than the Corolla, their 2,500 mm wheelbase was 130 mm longer than that of the Corolla.

At the time, there was a growing worldwide trend among FF cars to mount the engine transversely. However, the Tercel and the Corsa went against this trend and placed a newly developed inline 4-cylinder SOHC 1.5-liter 80 PS engine (1A-U) lengthwise, with the manual transmission (4- or 5-speed) and final drive units located underneath. The advantages of the lengthwise engine placement included the ease of maintenance, smoother gear shifts, and the absence of torque steering. The 4-wheel independent suspension employed a MacPherson strut and coil spring system for the front and a trailing arm and coil spring system for the rear. A 1.3-liter 74 PS engine model was added to the line in June 1979. A 3-speed automatic transmission option was made available to the 1.5-liter model in August 1979, and to the 1.3-liter model in August 1980.