The third generation Prelude was a refinement of the second generation. Two versions were offered: the Prelude S, equipped with a 105 hp, 12-valve, SOHC, twin-carb B20A3, and the Si, which substituted a 16-valve, DOHC head and fuel-injection to produce 135 hp B20A5.

This time, both front and rear suspension employed a double A-arm front layout. Brakes, wheels and tires grew to cope with the larger car. An optional active four-wheel steering system was a first in production passenger cars; the system counter-steered the rear wheels at low speeds to decrease turning radius, and at higher speeds, steered them in parallel with the front to increase high-speed stability in rapid maneuvers such as lane-changes.

Weight grew along with power though, and the Si was only slightly faster than the second-generation car. In 1990, Honda upgraded the Prelude Si with a 2.1-liter engine, basically a bored-out B20A5, which also marked an early production application of the fiber-reinforced aluminum cylinder wall Honda had developed for racing engines, and produced an extra 10 horsepower over the smaller engine. Both versions of the 2-liter engine continued to be offered as well. Total third-generation production for the U.S. market was 160,909.