Volkswagen made very few changes to its Rabbit hatchback for 1978, perhaps in anticipation of a big change that would come the following year (when VW would move production of the Rabbit to a new plant in Pennsylvania). The Rabbit was powered by a 71-horsepower four-cylinder engine installed sideways, so that it minimized the amount of space it required. And because the engine was mounted in the front, it provided additional traction for the front wheels. A four-speed manual transmission was standard in the Rabbit, while a four-speed automatic was available as an option.

The Rabbit was also available with a 1.5-liter diesel engine, which was able to pump out just 48 horsepower. But the diesel made up for its lack of power with improved durability, dependable performance, and exceptional gas mileage, nearing 50 miles per gallon on the highway and 40 mpg in the city.

Standard equipment for the Rabbit included padded sun visors, a rear window defogger, and specially designed front and back seats that provided improved lower back support. Optional equipment included fog lamps, air conditioning, a passive restraint system, a racing-type steering wheel, and a European-style shift lever.

The 1978 Rabbit was generally very popular with drivers, particularly the diesel models, which were especially appreciated for their high gas mileage at a time when gas prices were soaring.