In early 1963, General Motors' management banned divisions from involvement in auto racing. This followed the 1957 voluntary ban on automobile racing that was instituted by the Automobile Manufacturers Association. By the early 1960s, Pontiac's advertising and marketing approach was heavily based on performance. With GM's ban on factory-sponsored racing, Pontiac's managers began to emphasize street performance.
In his autobiography Glory Days, Pontiac chief marketing manager Jim Wangers, who worked for the division's contract advertising and public relations agency, states that John DeLorean, Bill Collins, and Russ Gee were responsible for the GTO's creation. It involved transforming the upcoming second-generation Pontiac Tempest (which reverted to a conventional front-engine with front transmission configuration) into a sporty car, with a larger 389 cu in (6.4 L) Pontiac V8 engine from the full-sized Pontiac Catalina and Bonneville in place of the standard 326 cu in (5.3 L) V8. By promoting the big-engine option as a special high-performance model, they could appeal to the speed-minded youth market (which had also been recognized by Ford Motor Company's Lee Iacocca, who was at that time preparing the sporty Ford Mustang variant of the second generation Ford Falcon compact).
The GTO disregarded GM's policy limiting the A-body intermediate line to a maximum engine displacement of 330 cu in (5.4 L). Pontiac general manager Elliot "Pete" Estes approved the new model, although sales manager Frank Bridge, who did not believe it would find a market, insisted on limiting initial production to 5,000 cars.
The name, which was DeLorean's idea, was inspired by the Ferrari 250 GTO, the successful race car. It is an Italian abbreviation for Gran Turismo Omologato ("grand tourer homologated"), which means officially certified for racing in the grand tourer class. But in reality, the Pontiac GTO was never really a certified Grand Tourer race car. Internally, it was initially called the "Grand Tempest Option", one of many automobiles in the Pontiac line up with a 'Grand' in it. Despite these things, the GTO is one of the fastest cars ever manufactured by Pontiac.