The Monaco Grand Prix marked the first World Championship race of the new 3-liter formula and there were a multitude of changes, including a variety of new teams, in various states of preparedness. One of the major problems was that the Coventry Climax company - which was owned by Jaguar - had decided to withdraw from the sport. The company handed its old engines to Bob King's Racing Preparations in Wembley and while these helped privateers they were not competitive against the new engines. Team Lotus, which had dominated in 1965, had convinced the Ford Motor Company to fund the construction of a new engine by Cosworth Engineering and Keith Duckworth and Mike Costin were busy preparing the DFV. This left Lotus without an engine for the 1966 season and so a deal was struck to use the BRM H16 engine. Ferrari had a well-developed 3.3-liter V12 sportscar engine and this was reduced to meet the 3-liter regulations. Brabham had decided on a different route and had commissioned the Australian company Repco to modify an obsolete Chevrolet block to produce a simple 3-liter V8 engine. Tony Rudd at BRM had gone a more complicated route with the H16. Cooper was sold to the Chipstead Motor Group, which had the Maserati concession for the United Kingdom, and so the old Maserati V12 from 1957 was revived. Honda began work on a V12 engine but this would not be seen until late in the season. Bruce McLaren had left Cooper and had started his own team with the intention of using the Ford Indianapolis V8 engine. Dan Gurney had also embarked on his own project and had commissioned Weslake Engineering to design a V12 for him.

On the driving front Team Lotus retained Jim Clark and Peter Arundell returned, having recovered from his injuries of the previous season. This left Mike Spence out of work and so he joined Richard Attwood at Reg Parnell Racing to replace Innes Ireland. John Surtees was back in action for Ferrari although he was still suffering from some of the injuries he had suffered the previous year in a CanAm crash. Lorenzo Bandini remained his team mate. With Gurney doing his own thing Jack Brabham promoted Denny Hulme to be his number two. Cooper recruited Richie Ginther to partner Jochen Rindt. BRM retained Graham Hill and Jackie Stewart while Chris Amon moved to join McLaren in the new team. Jo Bonnier left Rob Walker to start his own team but Walker continued with Jo Siffert.

On the tyre front Firestone joined the battle between Goodyear and Dunlop.

In the pre-season non-championship races Surtees and Brabham were both successful and so there was considerable interest when the F1 teams gathered in Monaco. Lotus did not have enough engines and so Clark appeared in a 1965 car. This did not stop him taking pole position with Surtees alongside him on the front row. Stewart and Hill shared the second row, using 1965 engines, while the third row consisted on Bandini and Hulme. The fourth row featured Rindt and privateer Bob Anderson using a 1965 Brabham-Climax. McLaren qualified his new car in 10th position while F1 debutante Guy Ligier also made the field in a private Cooper-Maserati.

At the start Clark ran into trouble with his gearbox and so Surtees took the lead with Stewart and Hill chasing him. Clark was the back although within 10 laps he had battled through the field to eighth place. On lap 15 Surtees went out with a differential failure and with Hulme disappearing with a drive shaft failure and Brabham with a gearbox problem, Clark found himself in fifth place behind Stewart, Rindt, Bandini and Hill. In the laps that followed Rindt dropped back to fifth and retired on lap 56 with an engine failure. Four laps later Clark went out with a suspension failure and Hill's hopes of another victory ended with a spin. This left Stewart to win by 40 seconds from Bandini. It was the young Scotsman's second victory in only his 11th race. Fourth place went to Bob Bondurant in a private BRM, but he was five laps behind. There were no other classified finishers although Ligier and Bonnier were still running more than 25 laps behind.