The third-generation Mustang was produced from 1979 to 1993. Built on Ford’s ubiquitous Fox platform, it evolved through a number of sub-models, trim levels, and drivetrain combinations during its production life.
In 1979 the 302 cu in (4.9 L) was dropped in favor of a new 255 cu in (4.2 L) V8 due to its better fuel economy. It was the only V8 offered in 1980 and 1981. Basically a de-bored 302, the 4.2 L V8 had restrictive heads and managed to produce 120 hp, the lowest power ever for a Mustang V8. Compounding the lack of power, the 4.2 L was mated only with the three-speed automatic transmission. This meant the 2.3 L Turbo 4 was the sole "performance" engine. It was listed as an option through 1981, but quietly dropped for 1982, although it was still available in Canada. This engine would return in the new-for-1983 Turbo GT. The "Traction-Lok" limited slip differential was available for the first time in 1981, with all engine combinations.
Source: Wikipedia, 2012