The 309 had been conceived as a replacement for the Talbot Horizon, and as a result its development had been performed by the former Chrysler/Simca wing of PSA. Styling was the responsibility of the former Chrysler-Rootes design studios in Coventry, whilst much of the engineering was done at the Simca site at Poissy in France. The only stipulation from PSA management was that the new car had to use as much existing architecture as possible; hence the use of a stretched Peugeot 205 floorpan and door shells, whilst the Simca engines and transmissions from the Horizon were also carried over.

Production in France began at the former Simca plant in Poissy in the end of summer 1985, with the first French customers getting their cars in October of that year; but it was decided that RHD models would be built at the Ryton plant near Coventry, which had previously been owned by the Rootes Group and then Chrysler Europe before Peugeot took it over in 1978. The first 309 for the British market rolled off the production line at Ryton in October 1985, and sales began the beginning of 1986, although left-hand drive sales of the Poissy built models began in France in October 1985. The only bodywork available originally was the five-door hatchback.

The 309 was not intended to replace Peugeot's own model, the 305, but the out of step model number was intended to distance it from the larger 305 in the marketplace and to reflect the car's Simca origins

The summer of 1989 saw the introduction of the Phase 2 Peugeot 309. It revised the design of the rear, lowering the boot lip, changing the rear lights to a more 'smoked style' and making slight alterations to the front radiator grille.

Towards the end of 1992, production of the 309 began to wind down in anticipation for the launch of the new Peugeot 306, returning Peugeot to their normal numbering scheme, production ended completely in 1993. As of 2018, only 481 Peugeot 309s remained on the roads in the United Kingdom, with another 1,378 registered being kept off the road as SORN.