The 1967 model year Mustang was the first model to feature a major redesign with the installation of a big-block V8 engine. The overall size, interior and cargo space were increased. Exterior trim changes included concave taillights, side scoop (1967) and chrome (1968) side ornamentation, square rear-view mirrors, and usual yearly wheel and gas cap changes. The high-performance 289 option was placed behind the newer 320 hp (239 kW) 390 cu in (6.4 L) FE engine from the Ford Thunderbird, which was equipped with a four-barrel carburetor. A 390 GT engine, and a 4-speed manual transmission recorded quarter mile times of approximately 13 seconds and trap speeds of over 105 mph (169 km/h). During the mid-1968 model year, a drag racer for the street could be ordered with the optional 428 cu in (7 L) Cobra Jet engine which was officially rated at 335 hp (250 kW) all of these Mustangs were issued R codes on their VIN#'s.
The 1967 and 1968 models discontinued the "Pony Interior" in favor of a new deluxe interior package, which included special color options, brushed stainless steel (1967) or woodgrain (1968) trim, seat buttons, a tilt steering wheel, and special interior paneling. The 1968 models that were produced during 1968 were also the first year to incorporate 3 point lap belts as opposed to the standard lapbelts The air-conditioning option was fully integrated into the dash, the speakers and stereo were upgraded, and unique center and overhead consoles were options. The fastback model offered the option of a rear fold-down seat, and the convertible was available with folding glass windows. Gone too was the Rally-Pac, since the new instrument cluster had provisions for an optional tachometer and clock. Its size and shape also precluded the installation of the accessory atop the steering column.
The California Special Mustang, or GT/CS, was visually based on the Shelby model and was only sold in Western states. Its sister, the 'High Country Special', was sold in Denver, Colorado. While the GT/CS was only available as a coupe, the 'High Country Special' model was available in fastback and convertible configurations in 1966 and 1967 and only as a coupe in 1968.
The Mustang fastback gained popular culture status when used in the crime thriller Bullitt (1968). Lt. Frank Bullitt, played by actor Steve McQueen, drove a modified Highland Green 1968 Mustang GT fastback with 390 cu in (6.4 L) 4V engine, chasing two hitmen in a black 1968 Dodge Charger in the film's car chase through the streets of San Francisco.