With the arrival of the third generation Legacy, the second generation Outback wagon became its own model.
 The Legacy SUS remained unique to North America and was realigned with the Outback Limited package, offering the sedan with an optional horizontal six-cylinder engine, also optional on the wagon.
The new bodystyle was introduced to Japan September 1998, and called the Lancaster.
The USA-spec Outback was available starting in 2000.
In October of that year Nissan introduced a Japan-only called competitor with an Outback-like appearance called the Nissan Avenir Blaster.

The raised roof was retained, but the new body was smoother, rounder, and about 3 inches longer, with a slightly longer wheelbase.
A new version of Subaru's flat four-cylinder "boxer" engine was standard, offering more low-end torque, better fuel economy, and smoother performance.
There were no changes to the front suspension, but there was a complete makeover of the rear suspension, which included a new design that occupied less of the backspace, adding more room in the trunk and cargo floor.
Safety improvements consist of three-point seat belts for the driver and additional four passengers.
There is also a child-safety-seat anchor for all of the seat positions in the back.
For the front, the seat belts are positioned to better hold the driver and front passenger along with front and rear air bags installed to protect the occupants in a collision.
The Subaru Outback received a good rating from The Insurance Institute for Highway Safety in 2000 for its performance in a safety demonstration of a crash test at 40 miles per hour.
The Outback has been since developing to make it as safe, smooth, and convenient a ride that it can be.

The rear seat on the Outback sedan does not fold down, unlike previous generations where the rear seat had a 60:40 folding seat for extended length items.
Rear headrests are now included as standard equipment on all trim levels.
The ground clearance is 7.3 in (190 mm).
The engine now meets California's LEV emission standard.

The Outback came standard with a 165 hp (123 kW) by SAE, 4-cylinder boxer engine, four-cylinder SOHC design with a maximum torque of (166 lb⋅ft (225 N⋅m)) that was available at a lower RPM compared to the previous generation.
The 2.5 L SOHC four-cylinder engine uses a timing belt that must be replaced around 100,000 miles (160,000 km), whereas the 3.0 L six-cylinder engine uses a timing chain that does not require replacement under normal conditions.

The base model six-cylinder was offered as the H6-3.0 — its interior, and available options, were identical to those of the Outback "Limited", with the exception of manual transmission, although many successful non-factory transmission swaps have proven that it physically bolts up without issue (but still requires some significant modifications to the electrical system).
 Badging for all 6-cylinder Outbacks was located on the front grille as well as on the rear of the vehicle.

In a higher trim level, known as the Outback H6-3.0 L.L. Bean in the USA, it included standard features like an in-dash six-disc CD changer, automatic climate control, leather upholstery, and dual moonroofs.
OnStar was available as an option on the USA-spec L.L. Bean and VDC trims.
In-dash satellite navigation was offered on Japan-spec vehicles on upper trim level wagons starting with Model Year 1998, and continued to offer a Momo black leather steering wheel with genuine wood inlay, shift knob and parking brake handle.
Plaid upholstery was still offered on Japan-spec Lancasters.

The six-cylinder was also available as the Outback H6-3.0 VDC; a 200 Watt McIntosh stereo system was standard from 2001 to 2004 with Subaru's VDC (Vehicle Dynamics Control) system, which integrated stability control with traction control.
These were some of the only vehicles ever factory-equipped with McIntosh stereo equipment.
The system was also mated to a previously used Japanese-market AWD system, called VTD, in which power was split 45/55 front-to-rear in normal conditions.
 When wheel spin is detected, the
With the arrival of the third generation Legacy, the second generation Outback wagon became its own model.  The Legacy SUS remained unique to North America and was realigned with the Outback Limited package, offering the sedan with an optional horizontal six-cylinder engine, also optional on the wagon. The new bodystyle was introduced to Japan September 1998, and called the Lancaster. The USA-spec Outback was available starting in 2000. In October of that year Nissan introduced a Japan-only called competitor with an Outback-like appearance called the Nissan Avenir Blaster.
The raised roof was retained, but the new body was smoother, rounder, and about 3 inches longer, with a slightly longer wheelbase. A new version of Subaru's flat four-cylinder "boxer" engine was standard, offering more low-end torque, better fuel economy, and smoother performance. There were no changes to the front suspension, but there was a complete makeover of the rear suspension, which included a new design that occupied less of the backspace, adding more room in the trunk and cargo floor. Safety improvements consist of three-point seat belts for the driver and additional four passengers. There is also a child-safety-seat anchor for all of the seat positions in the back. For the front, the seat belts are positioned to better hold the driver and front passenger along with front and rear air bags installed to protect the occupants in a collision. The Subaru Outback received a good rating from The Insurance Institute for Highway Safety in 2000 for its performance in a safety demonstration of a crash test at 40 miles per hour. The Outback has been since developing to make it as safe, smooth, and convenient a ride that it can be.
The rear seat on the Outback sedan does not fold down, unlike previous generations where the rear seat had a 60:40 folding seat for extended length items. Rear headrests are now included as standard equipment on all trim levels. The ground clearance is 7.3 in (190 mm). The engine now meets California's LEV emission standard.
The Outback came standard with a 165 hp (123 kW) by SAE, 4-cylinder boxer engine, four-cylinder SOHC design with a maximum torque of (166 lb⋅ft (225 N⋅m)) that was available at a lower RPM compared to the previous generation. The 2.5 L SOHC four-cylinder engine uses a timing belt that must be replaced around 100,000 miles (160,000 km), whereas the 3.0 L six-cylinder engine uses a timing chain that does not require replacement under normal conditions.
The base model six-cylinder was offered as the H6-3.0 — its interior, and available options, were identical to those of the Outback "Limited", with the exception of manual transmission, although many successful non-factory transmission swaps have proven that it physically bolts up without issue (but still requires some significant modifications to the electrical system).  Badging for all 6-cylinder Outbacks was located on the front grille as well as on the rear of the vehicle.
In a higher trim level, known as the Outback H6-3.0 L.L. Bean in the USA, it included standard features like an in-dash six-disc CD changer, automatic climate control, leather upholstery, and dual moonroofs. OnStar was available as an option on the USA-spec L.L. Bean and VDC trims. In-dash satellite navigation was offered on Japan-spec vehicles on upper trim level wagons starting with Model Year 1998, and continued to offer a Momo black leather steering wheel with genuine wood inlay, shift knob and parking brake handle. Plaid upholstery was still offered on Japan-spec Lancasters.
The six-cylinder was also available as the Outback H6-3.0 VDC; a 200 Watt McIntosh stereo system was standard from 2001 to 2004 with Subaru's VDC (Vehicle Dynamics Control) system, which integrated stability control with traction control. These were some of the only vehicles ever factory-equipped with McIntosh stereo equipment. The system was also mated to a previously used Japanese-market AWD system, called VTD, in which power was split 45/55 front-to-rear in normal conditions.  When wheel spin is detected, the 
Subaru Legacy (third generation)