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Subaru introduced the "New Age" Impreza to Japan in August 2000. Larger in size compared to the previous iteration, the sedan increased its width by 40 millimetres (1.6 in), while the wagon notably increased by just 5 millimetres (0.2 in)—placing the two variants in different Japanese classification categories. The coupe body style from the first generation did not reappear for the new series, and the off-road appearance package that included contrasting-colored bumpers did carry over forward. Marketed as a separate model line, this North America-only variant was, as before, badged the Outback Sport.

Naturally aspirated flat-four (boxer) engines comprised the 1.5-liter EJ15, the 1.6-liter EJ16, the 2.0-liter EJ20, and the 2.5-liter EJ25. Turbocharged versions of the 2.0- and 2.5-liter engines were offered in the WRX and WRX STI models. STI models featured a more powerful 2.0-liter (2.5-liter outside of the Japanese market) turbocharged engine. WRX models featured a 2.0-liter turbocharged boxer engine until 2005, after which they switched to the 2.5-liter turbocharged engine.

At the Australian Wheels Car of the Year, the car won the overall COTY award in 2000. At the American MotorWeek Drivers' Choice Awards, the Impreza won the Best Sport Sedan in 2002 and the Best Performance Car in 2004.