On May 23, 2003, Fuji Heavy Industries debuted the redesigned Legacy, known as the BL for sedan models and BP for wagons. It was released worldwide in 2004, with Subaru Indiana Automotive commencing production in February 2004 for the North American markets for 2005 model year. The Legacy was presented the 2003–2004 Japan Car of the Year, Subaru's first win for the award after fighting off stiff competition from Toyota Prius and Mazda RX-8. When sales began in the US market, the Lafayette Factory built Legacy won 2005 International Car of the Year for Most Dependable/Sedan from Road & Travel Magazine, 2005 Automobile All-Stars for All-Star Family Car from Automobile Magazine and The 2006 International Engine of the Year Award in the 2.0-litre to 2.5-litre category for EJ255 engine. Lance Armstrong was used as a spokesman for both the sedan and wagon, and Sheryl Crow sang her 1996 hit "Everyday Is a Winding Road" in US market commercials. The chassis was redesigned and made stiffer, and it marked the return of a turbocharged engine to North American Legacy, featuring a 2.5-liter unit derived from that of the North American Impreza WRX STI. Due to advancements in turbocharger technology and tightening emission standards, the twin-turbo setup was dropped from the lineup. Turbocharged models and the H6 offered Subaru's first 5-speed automatic transmission, featuring SportShift technology licensed from Prodrive, Ltd.

The 2005 model year Legacy for the US market was offered in 2.5i, 2.5i Limited, 2.5GT, and 2.5GT Limited. All trim levels were available as Sedan and Wagon. For 2006, the regular GT was dropped, and the 2.5i Special Edition was added into the line up.

Subaru Liberty sedan (BL; facelift)

Subaru Legacy Sports Tourer (BP; facelift)
The Japanese market Legacy GT featured 2 litre turbocharged EJ20X and EJ20Y engines developing power and torque figures of 276 bhp (280 PS/206 kW) at 6400 rpm and 343 N·m (253 lb·ft/35 kgm) at 2400 rpm respectively. The GT Spec B had an optional 6 speed transmission. Both models featured Bilstein suspension as standard. Both wagon and sedan received a facelift in 2006 receiving new bumpers and trim, the IHI VF38 twin scroll turbo was replaced with later models receiving a VF44 (auto) or VF45 (manual) turbo.

On May 10, 2008, the Japanese-spec Legacy can be fitted with a new collision avoidance feature, called EyeSight. It consists of twin CCD cameras, one on each side of the rear view mirror, that use human-like stereoscopic vision to judge distances and generally keep tabs on the driver. The system can help maintain a safe distance on the highway, a lane departure warning system, a driver alert warning for various safety situations, and even keeps an eye out for pedestrians.[5][6] SI-Cruise has been integrated into the EyeSight feature as a driver safety aid.

The Subaru EE flat-4 diesel engine, the world's first to be fitted to a passenger car, is offered in both the Legacy and Outback sedans and wagons, identified as the Subaru Legacy 2.0D. The vehicle was released in the European Union starting March 2008, and is offered with a 5-speed manual transmission only. The official introduction of the Legacy and Outback diesel was at the Geneva Motor Show in March 2008