For 1978, all GM intermediate cars were downsized. 700 pounds and 15 inches of length off of the Chevrolet Monte Carlo, but at the same time added more interior and trunk space. For the 1978 model year, the third generation Chevy Monte Carlo could be had with a 231 cubic inch V-6 from Buick or a Chevy 305 V-8. A 3-speed manual came standard, but V-8 and Landau models came with the auto and the V-8 could be ordered with a 4-speed.

For 1979 there were minor trim changes and a change from the 231 Buick to a 200 cid Chevrolet V-6 as the base engine. The V-8’s performance jumped slightly to 160 hp. Manual transmissions had proven unpopular on the Monte Carlo and were discontinued after 1979. 1980 saw a more notable change visually with new quad headlights up front, and under the hood there was a new base V-6, a 231 cid turbocharged V-6 that made 170 hp, and 267 or 305 cid versions of the Chevrolet small block V-8.

1981 saw another restyle, although the engines remained the same as the year before, including the turbo V-6. The turbo was discontinued after 1982, though, and new powerplants included a 260 cid V-6 and an Oldsmobile 350 V-8, which were both diesels. For 1983, a Super Sport package called the Z65 was introduced and included a new front fascia, rear spoiler and the small-block V-8. The 1984 Monte Carlo SS got a slight bump in power, and came with Strato bucket seats and a center console. 1985 added available T-tops to the SS as well as more available colors and a 3.73 rear axle. As for the rest of the Monte Carlo range, the diesel engines were gone and the remaining engines got a slight bump in power.

1986 introduced the interesting Aerocoupe model, which had a Monte Carlo SS body but with sloping rear glass and a small trunk spoiler. Only 200 were sold in order to homologate the body style for NASCAR, where the elongated rear window had an aerodynamic advantage. The Aerocoupe proved to be a popular choice in 1987, however, as over 6,000 sold out of just over 39,000 total Monte Carlo SSs sold that year.

While Monte Carlo has been the body style to beat in NASCAR during much of the 1970s, the shorter third generation cars did not prove all that competitive. The Monte Carlo returned to glory, however, with the introduction of the Aerocoupe. Darrell Waltrip won 12 races, including the 1989 Daytona 500, in a Monte Carlo Aerocoupe.

The last year for this generation Monte Carlo was 1988, and this would also be the last of the rear-wheel drive Monte Carlos. For many, the move to a transversely mounted and front-drive with the fifth generation was effectively the death of the model.