The 1986 championship culminated in a battle between Williams drivers Nigel Mansell and Nelson Piquet and McLaren driver Alain Prost at the final race, the Australian Grand Prix. Mansell's tyre exploded and Piquet was brought in for a precautionary pit stop for tyres as a result, leaving Prost to win the race and his second consecutive Drivers' Championship. Mansell, Piquet and Prost, along with Lotus' Ayrton Senna, dominated throughout the season and formed what was dubbed as the "Gang of Four".
For the first time, turbocharged engines were compulsory due to a ban on naturally aspirated engines. This ban would be rescinded in 1987, in preparation for turbos themselves being banned from 1989.
The Formula One cars of 1986 are the most powerful Grand Prix cars to ever have raced. There were still no limits on engine power, and some engines, including the powerful but rather unreliable BMW M12/13 1.5 litre single turbocharged straight-4 engine used by the Benetton, Brabham and Arrows teams, could throw out 1,350+ hp at 5.5 bar boost (79.7 psi) during qualifying; this would happen when the engineers took the boost restrictors off the engine. The power of the turbocharged engines was so great that it could not even be accurately measured until years later, when the technology was advanced enough. Purpose-built drivetrains had to be fitted to the chassis of each car for specific sessions – there were qualifying engines (as described above) that had unrestricted boost pressure, and qualifying gearboxes, designed to withstand the engine's extra power; these components would only last about 3–4 minutes (2–3 laps) during use. These drivetrain units were then taken out and then replaced with the boost-restricted engines and specifically prepared gearboxes for races (if too much power was used, the engines would be so worn that the combusting in the engine would burst right through the block due to the immense stress on the metal caused by the extreme temperatures of the combustions in the engine's internals, hence the nickname "grenade").
When these turbocharged engines were fitted to the cars, the whole package weighed about 540 kg (1,190 lb). For qualifying, the power to weight ratios were about 2,500 hp/ton+ for the Benetton-BMW and 1,850 hp/ton for the Benetton's race trim; compared to about 1,175 hp/ton for a modern F1 car – and all Formula 1 cars had manual stick-shift gearboxes then. A consistent problem for these new turbo engines that was somewhat smoothed over (particularly by Ford and Honda) over the years was the turbo lag. In the engines, which were mechanically turbocharged, the power would only come on all at once 2–3 seconds after the driver put his foot down; it would usually measure out from 100–300 hp for the first 2–3 seconds then the engine would go immediately to the top of the power range (usually 900–1000 hp). The nature of these engines made them very difficult to drive; drivers had to anticipate when the power would come on, so they would floor the gas pedal much earlier than usual to get the power on at the right moment. This was similar to what had gone on in American IndyCar racing in the early 1970s.
The boost of the engines would often be restricted to the point where they would only be producing around 900–1,000 hp during the race. The major automotive manufacturers participating in F1 at the time, with their superior money and resources ran at the front of the turbocharged engine development race. The Honda twin-turbocharged V6 exclusively supplied to the Williams team were second to BMW in overall power and had slightly less power than the German engines; the Ferrari, TAG/Porsche, and Renault twin-turbocharged V6 engines were not as powerful and as efficient as the Honda and BMW engines, producing about 25–40 less horsepower than the Japanese and German powerplants. The new Ford-Cosworth turbocharged V6 (a successor to the ubiquitous DFV V8) was made in a rush and was therefore underpowered and underdeveloped; it apparently had 150–200 less horsepower than the front-running European and Honda engines; but continued development meant that this engine got considerably better in 1987. The underfunded and very unreliable Alfa Romeo, Motori Moderni, Zakspeed and Hart engines were considerably less powerful than any of the others and kept their users down the order frequently. The power in engines from 1980 to 1986 doubled. In 1980, the most powerful engine was the Renault twin-turbo V6 engine, which produced between 550–600 horsepower; most teams were using naturally-aspirated Ford-Cosworth DFV V8 engines in 1980 that produced about 480–510 hp.
At many races, particularly at high speed circuits such as Imola, Spa-Francorchamps, Hockenheim, the Österreichring and Monza, fuel consumption was always a concern, as the FIA lessened the amount of allowable fuel from 220 litres in 1984 and 1985 to 195 litres for 1986. As a result, fuel consumption became a problem for most teams since the engines were slightly more powerful than before. There were many races where a number of drivers ran out of fuel, including Alain Prost at Hockenheim, who very nearly finished third but ran out of fuel less than 500 meters from the finishing line. He tried to push his stricken car across the finish line, ultimately never making it and finishing sixth. The Honda engines (second in power to the BMW engines) had the edge on fuel consumption and reliability, but the TAG/Porsche, Renault and BMW engineers were able to gain some ground later in the season.
The end of the 1986 season saw the retirements of two former World Champions, 1980 champion Alan Jones and 1982 champion Keke Rosberg, as well as Patrick Tambay. The careers of Jacques Laffite and Marc Surer also ended during 1986, both through serious injury: Laffite at the British Grand Prix, and Surer in a rally crash in Germany following the Belgian Grand Prix. This was the only F1 season for both Johnny Dumfries and Allen Berg; Huub Rothengatter also dropped out of F1 at season's end. Elio de Angelis was killed in a testing accident at the Circuit Paul Ricard following the Monaco Grand Prix; he remained the last driver to die in F1 until Roland Ratzenberger at the 1994 San Marino Grand Prix.
The 1986 Formula One calendar featured the brand-new Hungarian Grand Prix, as well as the return of both the Mexican Grand Prix (last held in 1970) and the Spanish Grand Prix (last held in 1981). Exiting the calendar were the Dutch and South African Grands Prix, as well as the infrequently-run European Grand Prix.