The design project was divided into two phases. First, to baseline the 260 Fairlane engine that was to be the basis of the new engine. Second, to develop a reliable aluminum version of the engine. Work on the 260 began on Sept. 1, 1962. The high performance 260 used in the Cobra was the starting point, dubbed the Stage 0 engine. Stage 1 involved revised and enlarged intake and exhaust ports, and 12.5:1 compression through the used of forged pop-up pistons. The special intake manifold carried four 46mm downdraft Webers carburetors. Larger valves, hollow-stemmed intakes and sodium-filled exhausts were fitted to the heads, along with high silicon content aluminum alloy retainers. 7/16" screw-in rocker studs, with Loctite and further secured by roll pins. The connecting rods were taken from the 289 HiPo engine, fitted with bronze wristpin bushings, shot-peened and polished. The crankshaft used cross-drilled journals for improved connecting rod bearing lubrication at higher engine speeds. After several different camshaft grinds were tried, the 260 produced 325 hp on gasoline, meeting the power objective set for the Lotus racecar.

Special aluminum cylinder heads were made up using the 260/289 production head as a starting point. These heads used aluminum bronze alloy valve guides, alloy steel valve seat inserts, steel valve spring seats, oil passages for the shaft mounted Y-block style rocker arms, and four additional bosses to hold the top row of head studs.

The production cast iron crankshaft was not up to the rigors of Indy. The racing engine used a forged steel crank, with revised counterweighting for internal balancing. Bearing size and type was identical to the 289 HiPo, tri-metal Clevite. The rod crank pins were drilled to lighten and and formed an oil reservoir. The ends of the holes were plugged with steel cup plugs, and pinned. This is similar to that found later on the 427. Forged pistons were used, with full-floating pins retained by double-helical spring retainers. Rods were taken from the Stage 1 engine, 289 HiPo, shot-peened and polished. The oiling system was highly modified and is explained below in the article on the 1964 engine.

The Stage 2 got a new intake, this time fitted with 58 mm Webers. Ford tested the engines and did some of the tuning work using a 1963 Galaxie. This chassis with a very low rear axle ratio allowed the engineers to simulate the full throttle acceleration runs typical of the Indy racetrack. From a lower rpm limit of 5000 rpm to the maximum of 7200 rpm at the end of the long straights. With the body removed from the chassis, Ford placed the "car" in its windtunnel to streamline the exhaust headers. The Autolite Division prepared an electronic spark box for the engine. No mechanical advance was used. The static timing was set to 50 degree BTDC! Due to delays in the electronics of about 1 degree per 1000 rpm, the final spark timing was 43 degrees at 7000 rpm. (I wonder how that started the darn thing?)

The project was completed in time for the Indy time trials in May, 1963. The engine was producing 365 hp. The test engine had run 2-1/2 hours on the dyno, and over 450 miles on the track at Indy. It was returned to the dyno and found to have broken in a bit, producing 376 hp.

For 1964 a dual overhead cam version of the engine was produced. The block was cast of aluminum alloy, using patterns modified from the production 289. Cast iron cylinder sleeves were a shrink fit in the block, are were sealed at the heads with copper laminated steel O-rings. In order to clear the two banks of camshafts in the heads, the 10 attaching studs were moved in closer to the cylinder centerline. An additional 8 studs protuding from the heads maintained the clamping force needed to seal the combustion chambers. The space occupied by the camshaft in the normal production engine was replaced with an oil tube. This acted as a gutter and collected oil as it drained from above to keep it off the reciprocating assembly.

The bottom end was beefed up considerably. The special forged steel crankshaft was held by 4-bolt bearing caps on numbers 1 through 4. Main and rod bearing journals are the same size as the 289, as is the engine's stroke - 2.87". The rod journals are crossdrilled for better oiling at high engine speeds. The rods are from the 289 HiPo, having been modified for floating pistons pins. The pins are 289 HiPo pieces. The oil pan is cast magnesium and is a structural part of the engine as is common in Indy and Formula car design. Ears cast intregrally with the pan provide the engine mounting points in the chassis.

The cam-ground forged aluminum pistons have a pent-roof dome to closely fit the combustion chambers. Compression is 12.5:1. The cylinder heads used 4 valves per cylinder with a central spark plug location. The plugs are canted toward the 1.64" diameter intake valves. Exhaust valves are 1.36" diameter. The camshafts run in bearing bores in the cylinder heads, directly over their valve banks. Valve clearance is adjusted by the selective fitting of the followers. Intake ports are between the cams, with exhaust out the top of the heads between the vee. This was done to do away with the nightmare of exhaust tubing normally required. Hilborn injection is used having been selected for its light weight and simple low-pressure design.

And with all that exhaust plumbing and the turbocharger itself, these engines were quieter than the 1964 version.