All 5 types of engines available at the time of the new model's initial release were carried over from the seventh generation. These engines included the "High-mecha twin cam" 1.3-liter 4E-FE, the 1.5-liter 5A-FE, the 1.6-liter 4A-FE and the Sports twin cam 1.6-liter 4A-GE gasoline engines and the 2.0-liter 2C-III diesel engine. However, the high efficiency oriented "High-mecha twin cam" engine, the Sports twin cam engine for sporty driving and the High-torque diesel engine designed for good fuel economy were all significantly tweaked for better performance while perfecting the unique qualities of each engine.

For the 5A-FE and 4E-FE, the prime engines of the Corolla, the team strived to achieve noticeable improvements in performance, while keeping in mind economic efficiency and operational ease. Targeted refinements included the increase of torque in the practical application range and achieving even better fuel efficiency. To realize this, a broad array of changes were made, such as adopting an Idle Speed Control (ISC) device, expanding the fuel cut off range when decelerating, reducing friction and making changes in the intake and exhaust systems. As a result, the 5A-FE engine generated a maximum output of 100ps/5600rpm and a maximum torque of 14.0kg-m/4400rpm, and the 4E-FE engine achieved a maximum output of 88ps/5600rpm and a maximum torque of 11.8kg-m/4600rpm. The lowered maximum output of these two engines compared to the seventh generation model became a major topic of conversation at that time. This was the result of preference for stress-free operational ease in daily use rather than peak power in the high speed range. However, lowering output figures generally had not been done before other than when emissions regulations were tightened or when engine output measurement methods were changed.

On the other hand, for the Sports twin cam 4A-GE engine, the team targeted a higher output in the high speed range, suited for sporty driving and smooth power delivery through the entire speed range. Advanced technology from the former model was inherited, including the 5-valve mechanism, the VVT (Variable Valve Timing) mechanism and independent throttle valves for each cylinder. Changes were made to the valve operating system, intake and exhaust systems and combustion chamber to achieve a high revving, high output engine with a maximum output of 165ps/7800rpm and a maximum torque of 16.5kg-m/5600rpm. Also, a single muffler with a built-in variable valve was adopted in place of the conventional dual muffler. With this muffler, appearance from the rear of the vehicle was enhanced, and higher performance was achieved together with a lower noise level.

The injection pump characteristics were changed for the 2C-III diesel engine to comply with stricter domestic emissions regulations, and the emissions volume of black smoke and NOx (nitrogen oxide) was reduced to achieve an even cleaner engine. However, no changes were made to the maximum output and maximum torque, which remained at 73ps/4700rpm and 13.2kg-m/2800rpm respectively. The 1.6-liter 4A-FE underwent further reductions in weight, but the output figures remained unchanged at a maximum output of 115ps/6000rpm and a maximum torque of 15.0kg-m/4800rpm.

Transmissions also were carried over from the seventh generation model. Manual transmission was available in either a 4-speed or 5-speed version, while the automatic transmission was available in a 3-speed, 4-speed or a 4-speed with ECT-S. Resin parts were also adopted for a more lightweight design, and the shift stroke of the manual transmission was shortened for an improved shift feeling. The component parts of the automatic transmission were reviewed for a better match with the engine characteristics, and changes were made to the hydraulic characteristics to achieve smooth departure acceleration and response.

As in the past, a MacPherson strut suspension with an L-type lower arm was adopted for the front, and a dual-link type MacPherson strut suspension was adopted for the rear. Stress analysis using advanced technology was done on each component part to achieve optimized characteristics and significant weight reductions. As a result, high level handling performance and driving stability were achieved and unpleasant vibration (harshness) and noise were reduced. In addition, the gear ratio and hydraulic properties of the power steering system were changed to achieve a smoother steering feel.

In 4A-GE engine models equipped with a Super-strut suspension, a torque sensitive helical LSD (Limited Slip Differential), suited for sporty driving, was adopted for the first time in Japan on an front wheel drive vehicle. With this setup, if the inside wheels starts spinning while cornering, optimum driving force is immediately delivered to the outside wheels to achieve stable cornering and excellent controllability.