The new model is powered by a new 141bhp 2.0-litre turbocharged four-cylinder diesel engine, which produces 360Nm of torque.
It's capable of returning average fuel economy of 55mpg and emitting just 135g/km of CO2. This means it's cheaper to tax than the current entry-level X3 - the xDrive 20d - which emits 149g/km of CO2 and returns 50.0mpg.
Fuel saving features include standard-fit stop-start and brake energy regeneration. A six-speed manual gearbox is fitted as standard, while an eight-speed automatic is available as an option.
Despite the improved economy, the sDrive18d is still capable of going from 0-62mph in 9.9 seconds and on to a top speed of 121mph.
The new X3 sDrive18d will go on sale from October in SE and M Sport trims, with prices starting from £28,580.