In 1934 a new formula was to take effect in Grand Prix racing. Without fuel, oil and tyres the cars were allowed to weigh no more than 750 kilograms, and the body had to have a width of at least 85 centimetres. Otherwise there were no restrictions according to the rules adopted in October 1932 by the AIACR. Mercedes-Benz decided in 1933 to develop a new racing car for this formula. It was the return to top-level racing after a period of depression.

High unemployment, economic crisis, the Mercedes-Benz factory racing department shut down – the year 1932 was not a great time for motor sports activities in Germany. When the Nazis seized power in 1933, the conditions for motor sports changed in Germany: the Nazi government was bent on promoting the motor vehicle industry, took over the existing autobahn construction projects, cut taxes on new vehicles and urged the major manufacturers to involve themselves in motor sports.

This gave rise to the competition between Mercedes-Benz and Auto Union that put its stamp on racing in Europe in the years up to 1939. Auto Unionbought the P-car project of Ferdinand Porsche. Mercedes-Benz likewise had to have an entirely new car. The supercharged racing cars, serial winners in the 1920s, belonged to a past era. Their weight alone made it impossible to develop them further under the new Grand Prix rules.

Pressed for time, the technicians around chief engineer Hans Nibel developed a completely new racing car designed as a monoposto (open-wheel car), the
Mercedes-Benz W 25. The monoposto design, designed for one driver and no mechanic or co-driver, was the body form of the future for the elite class of racing. The days of racing with Grand Prix cars with two seats and four-seater touring cars were over. The combination of a slim body, a mechanically supercharged 3.4-litre in-line four-cylinder engine, independent wheel suspension, and a transmission directly mounted on the rear axle added up to an absolute winner. The W 25 attained top speeds of more than 250 km/h.

In 1958 racing manager Alfred Neubauer recalled the first driving tests with the new racing cars that would become the brand's first Silver Arrows: In February 1934 Mercedes-Benz organised test runs in Monza and on the autobahn between Milan and Varese; testing in Germany followed. "The little car was sheer delight," Neubauer writes in retrospect.

Rudolf Caracciola, who was recovering from his severe accident, also trained in Germany with the monoposto car: "I was cautious on the first lap, hesitant. … Then I opened the throttle more, the car got faster. The woods to my left and right consolidated into a greyish-green wall. The white ribbon of the road appeared to narrow even more, and the wind sweeping past had a high and clear singing tone." In addition to Caracciola, the new Grand Prix team was made up of Luigi Fagioli, Manfred von Brauchitsch, Hanns Geier and Ernst Henne.

Mercedes-Benz decided at the same time to give the W 25 a new body colour - silver. The first outing was planned for the Avus Race in Berlin in May 1934, but Mercedes-Benz was unable to take part on account of technical problems. As a result the new car was tried for the first time a week later at the International Eifel Race on 3 June. The
W 25 appeared at the start line in its silver livery, although as legend has it, the cars had been stripped of their white paint at the Nürburgring in order to meet weigh-in requirements for the 750-kilogramme race formula.

The 1934 Eifel Race was both the first race and the first victory for the new
Mercedes-Benz Formula racing car. Manfred von Brauchitsch brought the W 25 home with an average speed of 122.5 km/h, setting a new course record in the process.

The silver of the racing cars was retained for future races, and Mercedes-Benz continued its winning ways. Caracciola won the Klausen race, Luigi Fagioli the Coppa Acerbo. The two drivers shared the victory by Mercedes-Benz in the Italian Grand Prix in Monza: The 1276 curves and 928 chicanes to be negotiated over the full distance made the race in Monza the toughest one in the entire 1934 season, and after his accident in Monaco in 1933, Rudolf Caracciola wasn't fit enough yet to stick it out over the entire time. So at the half-way mark in the race, Luigi Fagioli took over the wheel of Caracciola's car with the competitor's number 2 and defended the lead built up by Caracciola up to the finish.

Fagioli also won the Spanish Grand Prix, with Caracciola taking second.
Mercedes-Benz had returned to the pinnacle of international racing. The 1934 season left no doubt about that. However, the new competitor Auto Union also proved a powerful force in the struggle for victory. The Stuttgart people answered the challenge with new generations of the W 25 in 1935. The most powerful version now developed 462 hp (334 kW) with a displacement of 4310 cubic centimetres.

This car gave Mercedes-Benz almost unlimited domination in the 1935 racing season: Rudolf Caracciola got back into top form and in his W 25 won the Grand Prix of Tripoli, the Eifel race, the French, Belgian, Swiss and Spanish Grand Prix races. He won the European champion's title in 1935. Also in 1935, Luigi Fagioli won the Monaco Grand Prix, the Avus race and the Grand Prix of Barcelona – ahead of Caracciola. "1935 was a year of triumph for Mercedes-Benz," Alfred Neubauer recalls. "We captured first place in five of the seven classic Grand Prix races in Europe."

Mercedes-Benz competed in the next season with a revamped W 25. "Our Mercedes engineers have come up with something entirely new for the 1936 racing year. The car is smaller and shorter now. But its displacement is 4.7 litres, and the engine develops well over 420 hp," Neubauer summarizes. But the latest stage in the evolution of the
W 25 could not pick up the thread of the successes of 1935. Mercedes-Benz managed only two victories in 1936, in the Grand Prix of Monaco and Tunis, both won by Rudolf Caracciola.

After the more or less average performance of the modified W 25 in its third season, Mercedes-Benz designed a new car for the 1937 racing year. The W 125 would dominate 1937 with its eight-cylinder engine in which a mechanical supercharger made for peak outputs of more than 600 hp (441 kW) obtained from a displacement of 5.6 litres. The W 125 was designed by Rudolf Uhlenhaut – an engineer who even impressed the stern racing manager Neubauer: "A genial young man has given our cars a new touch. His name is Uhlenhaut, and he is the only design engineer who ever knew how to drive a heavy Grand Prix car around a course at racing tempo with his own two hands."

The engineers relied on new detailed solutions. For instance, for the first time in a Silver Arrow the compressor was arranged downstream of the carburettors. That is to say, the supercharger compressed the finished mixture. The in-line eight-cylinder marked the highest stage of development of the Grand Prix power plant in use since 1934. The W 125 enabled Mercedes-Benz to move to the fore of European racing again. For the ultra-fast Avus race on 30 May 1937 it was fitted with a streamlined body. Hermann Lang won this race, as he did the Grand Prix of Tripoli. His average speed of 271.7 km/h on the Avus course was not beaten until 1959.

In the Eifelrace Caracciola and von Brauchitsch took second and third place, while Caracciola won the German Grand Prix ahead of von Brauchitsch. This marked the fifth win by Caracciola in a Mercedes-Benz in this Grand Prix, which is so important for the German public. The brand claimed one victory after another that year. Manfred von Brauchitsch won the Grand Prix of Monaco, followed by Caracciola and Christian Kautz as well as Geoffredo Zehender (5th). In the Swiss Grand Prix the men on the winner's rostrum were Caracciola, Lang and von Brauchitsch; Caracciola won the Italian Grand Prix, with Lang in second. By winning the Masaryk Grand Prix in Brno ahead of von Brauchitsch, Caracciola polished off a record-setting year which once again came to an end with him holding the title of European Champion.

Along with the successes in formula racing, the Stuttgart racing department also impressed with wins in reliability trials and other competitions mainly carried out with touring cars. But it was the W 125 in particular that gave Mercedes-Benz a magnificent racing year. It was a string of successes which could not be repeated, because the 750-kilogram formula ended with this season. From 1938 new rules applied limiting the displacement to three litres with mechanical supercharger or 4.5 litres without supercharger. And once again the fathers of the Silver Arrows demonstrated their unconditional commitment to competition, in the Development department and on the racetrack: For 1938 the entirely new W 154 racing car was created. It would take up where the successful 750-kilogram racers had left off. An average 430 hp (316 kW) was available to the drivers in the first half of the 1938 season, at the end of which it was more than 468 hp (344 kW). And with these power reserves and its outstanding technical concept, the W 154 "muscle machine", crouching low on the asphalt, became the most successful racing car of the era.

The very first race, the Grand Prix of Tripoli, was a triple victory for Hermann Lang, Manfred von Brauchitsch and Rudolf Caracciola. In the French Grand Prix Mercedes-Benz managed to repeat the triple win, this time with Brauchitsch before Caracciola and Lang. Briton Richard Seaman won the German Grand Prix on the Nürburgring, with the car jointly driven by Caracciola and Lang coming in second, while Hermann Lang won the Coppa Ciano in Livorno and Rudolf Caracciola the Coppa Acerbo in Pescara. In the Swiss Grand Prix three W 154 cars again took the first three places (Caracciola, Seaman and von Brauchitsch); for the third time Rudolf Caracciola was crowned European Champion that year.

In the last racing season prior to the Second World War Mercedes-Benz continued the successes of 1938 with the W 154. The first major race of that year was the Grand Prix of Pau, from which Hermann Lang in a W 154 emerged as winner ahead of Manfred von Brauchitsch. In the Eifel race in May, Lang was again the first driver to cross the finish line; Caracciola came in third, von Brauchitsch fourth. Hermann Lang followed through on these early successes, displaying an impressive continuity throughout the summer and autumn: In the Vienna Mountain Road Race he captured victory in the
W 154 hillclimb car (von Brauchitsch was 3rd); the two drivers repeated this placing at the Belgian Grand Prix in Spa; in the Swiss Grand Prix Lang finished ahead of Caracciola and von Brauchitsch.

Hermann Lang also won the Grand Prix of Tripoli. This race was the big exception among the Mercedes victories of 1939. It was announced that the competition would be held not in the three-litre formula dominated by the Stuttgart cars, but in the 1.5-litre category (voiturette formula). With this trick the organisers wanted to ensure victory for the Italian racing cars. But in only eight months the Mercedes-Benz engineers developed a completely new racing car, the W 165.

In the race the two Mercedes-Benz W 165 cars gave their opponents no break. Caracciola, on fresh tyres, raced right through with his short-ratio car, while Lang with his "long" rear axle ratio (and thus a higher top speed) made one quick pit-stop and won the Tripoli race almost one lap ahead of his team-mate. In 1939 Lang took the title of European Champion and German Mountain Champion. Caracciola, who won the 1939 German Grand Prix on the Nürburgring, was German road-racing champion.