After adding to its armory the Sd.Kfz.231 (8-Rad) heavy armored car in 1937, the military command ordered a special modification of this car intended for service in advanced reconnaissance units. The primary tasks for this car were stable radio communication with general headquarters, and coordination of fighting units in action.
The distinctive features of the new armored car were an armored body with a fixed turret, and a long external radio aerial installed on the body. The bigger turret was justified by an increase of the crew to 5 persons, 2 of them being radio operators. The radio equipment consisted of the Funkgerat fur msttleren Pz.-Funktrupp "b" radio station and Kurbelmast "P" adjustable telescopic antenna.
The installation of radio equipment significantly decreased space inside the car. At the development stage it was decided not to install the cannon, leaving only the machine gun available for frontal defense; its ammunition was decreased from 1000 to 750 shells.
After the beginning of WWII, fighting experience proved that fast acting motorized units require coordinated command, and cars with radio communication equipment could provide the necessary liaison. At this time the Sd.Kfz.263 (8-Rad) cars started to be widely used in their new role as mobile command units. One of the first commanders to appreciate the advantages of the Sd.Kfz.263 was Major-General Erwin Rommel, the commander of the 7th Tank Division at the start of the war.
These armored cars were used in all theaters almost until the end of the war. However, in comparison with other versions of the eight-wheeled armored vehicles, a rather small number of them was produced - only 240, the last cars being produced in 1943. Such a small number was partly due to the high cost of this armored car: around 57000 reichsmarks, while the cost of the Sd.Kfz.231 was less than 50000 reichsmarks.
Later, during overhaul, some of the Sd.Kfz 263 (8-Rad) cars were converted to the cannon-equipped Sd.Kfz 233 specification. By the end of 1944, these command cars intended for offensive tactics were less useful, and only single Sd.Kfz.263 (8-Rad) vehicles served in fighting units by the end of war.