For 1981, the Volkswagen Rabbit received a boost in power, for both its gas and its diesel engines. The Rabbit's standard powerplant was a new four cylinder, 1.7-liter single-overhead-cam gas engine that generated 74 horsepower, up from 71 hp the previous year. A new 1.6-liter diesel engine, which was available as an option, generated 52 horsepower, up from 48 hp.

The Rabbit's exterior also received some minor restyling, with the addition of wrap-around turn signals added to the Rabbit's square front headlights. The taillights were redesigned as well.

As in previous years, the Rabbit was available as either a two-door or four-door hatchback, with a number of trim packages available, including the Rabbit L, the Rabbit LX pickup, and the Rabbit convertible. MacPherson struts, large disc brakes, rack and pinion steering, four-wheel independent suspension, and energy-absorbing bumpers were all standard equipment. Other standard features and options included an AM/FM radio, color-coordinated interiors, reclining front seats, a rear window defogger, a wood-grained dash, and air conditioning.

Drivers were generally very positive in their reviews of the 1981 Rabbit, with many praising the Rabbit's reliability, quickness, gas mileage, and durability. Some noted that their Rabbits were still running even though the odometers were showing several hundred thousand miles.