The story begins when street racers of the Red Suns, a team from Mt. Akagi, come to challenge Mt. Akina's local Speed Stars team to a "friendly" race. After seeing how skilled the Red Suns are, the Speed Stars treat it as a race for pride, determined not to be humiliated on their home turf. However, the Speed Stars are left in a bind when their team leader and primary downhill driver Iketani has an accident during a practice run.
Iketani learns from Yuuichi, the manager of the gas station he is working in, that the fastest car in Akina's downhill was a panda-colored AE86 owned by a tofu maker, and traces the car back to a local tofu shop. He discovers that the shop's owner, Bunta Fujiwara, was a street racer of great repute in his younger days. Iketani appeals to the older man to take his place in the race against the Red Suns. Iketani is confident that Bunta will come to save the day. But when the race day comes, his son Takumi appears with his Toyota Trueno AE86 instead. Although at first reluctant to let Takumi race, Ikatani relents after it is revealed that he is actually the "Ghost of Akina," the one who outran Keisuke while on one of his delivery runs. Takumi proceeds to defeat Keisuke Takahashi and his Mazda RX-7 FD3S, causing considerable astonishment in the local racing community and putting an end to the Red Suns winning streak.
Originally apathetic about the notion of racing, having only raced Keisuke on the condition his father would let him have the car with a full tank of fuel for a day to use on a date, Takumi begins to grow more interested as he receives other challenges. He begins to understand the concept of a street racer's pride when everyone advises him to duck a challenge from a driver of Mt. Myogi's Night Kids team who drives an extremely powerful, technologically advanced Nissan Skyline R32. The competition against another member of the Night Kids, Shingo Shoji, becomes personal for Takumi after Shingo attempts to wreck Iketani and later forces his friend and co-worker Itsuki to crash when he mistook Itsuki's car for Takumi's. After this, which resulted in Shoji's defeat (in his Honda Civic EG6 hatchback--reportedly the rival to the AE86--in a "Duct Tape Deathmatch") came a duel with a female driver/navigator duo team hailing from Mt. Usui known as Impact Blue and their Nissan Sileighty.
Each of the races presents seemingly impossible odds to overcome. The opposing cars are almost always much more powerful than Takumi's AE86, and the race against Shingo is a "Duct tape Deathmatch," in which both drivers' right hands are taped to the steering wheel, a format which severely limits ability to steer and highly favors Shingo's Honda Civic EG-6, which is a front-wheel drive. Takumi's rear-wheel drive AE86 would be much harder to control, but by instinct, he figures out his own technique and went on to win the race. Shingo actually tried to crash into Takumi's car planning to end the race with a tie, but the AE86 entered a turn and dodged the EG6 and sent the latter to a major crash. The race against Impact Blue is the first for Takumi outside of Mt. Akina, in the completely unfamiliar environment Mt Usui, the SilEighty team's home course.
Takumi's first wet race was against Kenta Nakamura of the Red Suns, driving an S14, which happened in Myogi after Keisuke's race with Nakazato. That previous battle happened before the rain, with Nakazato leading all throughout until his tires lost grip, letting Keisuke drift his way to victory. Afterwards, the audacious Kenta asked the spectators if they wanted a race against the AE86, and they did. Takumi accepted the challenge. Kenta, having a more powerful car, led during the uphill part but Takumi went ahead on the downhill, finishing with a huge distance. This was among Takumi's easiest races, as he himself had tons of experience in more adverse weather conditions.
While Takumi races others over the course of the summer, Keisuke's brother Ryosuke Takahashi, who is the leader of the Akagi Red Suns, formulates what he refers to as his "Fastest Racer Theory" to defeat Takumi, relying on computer simulations that he had formulated. As summer draws to a close, Ryosuke challenges Takumi to a race and is defeated when he is overtaken by Takumi on one of the last turns before Akina's finish line. Ryosuke acknowledges that Takumi was faster than him, and advises him not to be satisfied with Akina's small stage and to seek out bigger challenges.
Second Stage
A group of street racers called Team Emperor, led by the professionally trained driver Kyouichi Sudou and all Lancer Evo drivers, appears in the Gunma Prefecture. They move through Gunma challenging and defeating the best team on each mountain they arrive at. However, Kyouichi's real goal is to have a rematch with Ryousuke Takahashi, unaware that he has recently been defeated by Takumi. When he discovers this, Team Emperor challenges the Akina Speed Stars to a race in the hopes that Takumi will compete in his 86. Takumi becomes the first person in Gunma to defeat a member of the Emperor team on the downhill when he beats the Evo team's second best driver, Seiji Iwaki.
Kyouichi then challenges Takumi to a match to “teach him some things” and as a sort of cover event for his race with Ryosuke. Although initially uninterested, Takumi eventually decides to go to Akagi. During this race the engine of Takumi's 86 is blown and effectively destroyed. Kyouichi lectures Takumi on the disadvantages of using such an old car in a modern street race. The Emperor leader also didn't consider it a real battle. He tells Takumi to get a more competitive car and race him again. The loss was not due to the 86's lack of power, as Ryosuke explains, it was because Takumi had not driven on Akagi before and didn't know the entrance speeds or anything else about the course that he could use to his advantage, basically leaving him driving blind in front of a power mongered Lancer Evolution 3 with the Misfiring System (anti-lag). If Takumi only knew the course even a little the race would have probably ended differently.
Finally, the long-awaited battle commences. Kyouichi was hungry to beat Ryosuke once and for all. The race started with the white FC leading, as Kyoichi formulated a new technique, Simulation X, for this battle alone. Midway through the race, the black Evo 3 passes Ryosuke and went on to lead until Ryosuke discovers his opponent's weakness. After defeating Kyouichi again, he explains to him that he still had that fear of right-hand corners, wherein a car running to the opposite direction can collide head-on. His local mountain pass, Irohazaka, was a one-way road, which is why Kyouichi wasn't able to work on removing that fear.
On the other hand, Bunta, knowing that the engine in the 86 was about to give out, had already bought a new engine - a high-revving, race breed variation of the standard Toyota 4A-GE 20 valve twin cam engine, which is used for Group A Division 2 Touring Class races in the Japanese Touring Car Championship. He installs the engine without a new tachometer to teach Takumi the importance of learning mechanical knowledge and understanding why the car behaves as it does. Takumi encounters a fellow 86 driver named Wataru, who after reacting with great surprise to Takumi's lack of mechanical knowledge explains that the engine is an extremely strong powerplant and requires several new gauges including a high-revolution tachometer, to be useful.
Once Takumi has made these modifications, Wataru challenges him to a race anywhere of Takumi's choosing. Takumi chooses to race on Wataru's home course of Shomaru, an abandoned mountain pass that is very dangerous. The race becomes one of endurance, and will only end if the chaser overtakes the leader, or the leader greatly outpaces the chaser. Wataru and Takumi switched positions several times, until Takumi discovers a change in the course's environment brought on by their many high speed passes and overtakes Wataru on a stretch that was previously too narrow for him to do so.
Also, Itsuki finds a new girlfriend in Wataru's younger sister, Kazumi.
Third Stage
Ryosuke approaches Takumi with an offer. Ryosuke has been putting together a racing team featuring the best racers of the Gunma prefecture, and would like Takumi to join.
Takumi doesn't want to decide whether or not to accept the proposal until he settles his score with Emperor driver Kyouichi Sudou. He arrives at Kyouichi's home course of Irohazaka, and after driving the course once, challenges Kyouichi to a race. Sudou lets Takumi go first, planning an overtaking maneuver at the slippery area at the bottom of the mountain. To his surprise, Takumi was able to steer properly at that spot, so he wasn't able to execute his plan. At the end of the race, Takumi thought it was a tie, but Kyouichi conceded because of his failed attack. Shortly after, another Irohazaka local surfaces, Kai Kogashiwa. Having first defeated Seiji, he had then set his eyes on Kyouichi as his target, but upon knowledge of his defeat, he challenged Takumi instead. Kai turns out to be the son of Ken Kogashiwa, who was once Bunta's rival and ultimately lost to him in the final race that counted between the two of them. Kai takes Takumi by surprise by taking the "one guaranteed line" his father told him about before the race. He passes Takumi by cutting a hairpin corner short and jumping the ledge. However, Kai mistimed his strategy and this allows Takumi time to recover and catch on. He emulates this line in order to keep up with Kai. Before the race Bunta knew Takumi would be behind at this point, and cryptically told him Irohazaka's dead leaves would be his only chance. As the race approaches its finish, Takumi uses the gutters to come up inside, forcing Kai on to the side of the road where leaves are collecting, then passes when Kai spins on the leaves before the finish line.
The Christmas holiday approaches and Natsuki surprises Takumi at his house, and celebrates Christmas with him and Bunta. On New Year's Day, Miki, a former student at the same high school Takumi attended who Takumi once punched over Miki's bragging about his sexual exploits with Natsuki (seen in a flashback from 1st Stage), arrives at Natsuki's workplace and threatens to make a scene if she does not get in his car. He takes her to Lake Akina with the intention of having sex with her, but after she reveals her feelings for someone else, he flies into a rage and attempts to rape her. She escapes his car briefly and calls Takumi. When Miki hears Takumi's name, and realizes that Takumi is the one Natsuki has feelings for and that he will be coming to save her, he forces her back in the car to take her somewhere else. They pass Takumi, who is coming in the opposite direction. Takumi turns around to chase Miki. As Miki tries to get away he enters a turn too fast in the snow and loses control of his car, crashing into the guardrail. Takumi then takes Natsuki home, both confessing their feelings on the way. As spring comes, Takumi tells Ryosuke that he wants to request another battle with him, this time on Mt. Akagi, before making his decision regarding the team. It is unclear who actually wins the race, but during the race Keisuke reveals to the other members of the Red Suns that the race is not really about who wins or loses. As they approach the finish, side by side, Takumi decides that it is his desire to remain with Ryosuke and join the team.