The XK120 was launched in open two-seater or (US) roadster form at the 1948 London Motor Show as a testbed and show car for the new Jaguar XK engine designed by Jaguar Chief Engineer William Heynes. The display car was the first prototype, chassis number 660001. It looked almost identical to the production cars except that the straight outer pillars of its windscreen were curved on the production version. The sports car caused a sensation, which persuaded Jaguar founder and Chairman William Lyons to put it into production.

Beginning in 1948, the first 242 cars wore wood-framed open 2-seater bodies with aluminium panels.Production switched to the 1cwt or 112 lb (51 kg) heavier all-steel in early 1950. The "120" in the name referred to the aluminium car's 120 mph (193 km/h) top speed (faster with the windscreen removed), which made it the world's fastest production car at the time of its launch. In 1949 the first production car, chassis number 670003, was delivered to Clark Gable.
1951 XK120 Fixed Head Coupe

The XK120 was ultimately available in three versions or body styles, first as an open 2-seater described in the US market as a roadster (OTS) then as a fixed head coupé (FHC) from 1951 and finally as a drophead coupé (DHC) from 1953, all two-seaters and available with Left (LHD) or Right Hand Drive (RHD). However, certain Special Equipment roadster and fixed head coupe cars were produced between 1948 and 1949 denoted by an 'S' preceding the chassis number. These Special Equipment cars were sold as an early production build for enthusiasts.
A version with a smaller engine (2-litre 4-cylinder) designated the XK100 and intended for the UK market was cancelled prior to production.

On 30 May 1949, on the empty Ostend-Jabbeke motorway in Belgium, a prototype XK120 timed by the officials of the Royal Automobile Club of Belgium achieved an average of runs in opposing directions of 132.6 mph with the windscreen replaced by just one small aero screen and a catalogued alternative top gear ratio, and 135 mph with a passenger-side tonneau cover in place. In 1950 and 1951, at Autodrome de Linas-Montlhéry, a banked oval track in France, open XK120s averaged over 100 mph for 24 hours and over 130 mph for an hour. In 1952 a fixed-head coupé took numerous world records for speed and distance when it averaged 100 mph for a week.

XK120s were also highly successful in racing and rallying.