In 1965 a deal with FIAT was signed which gave FSO a license to not only to produce the Fiat 125 but also to use its components for developing new versions of it or in the construction of other automobiles. The first Polski (Polish) Fiat 125p, as it was known, rolled off the assembly line in 1967 (the same year that Italian 125 production ceased). After years of countless modifications and 2 name changes (FSO 1500 and then FSO 125p), the manufacture of it ended in 1991, when the 1,444,791th one left the factory. Many variations of the 125p were available, including a station wagon, ambulance, and pick-up.

The Polski Fiat 125p also had some success in sporting events, especially in rallying, in the country and abroad. Some of the best known Polish competition drivers, such as Sobieslaw Zasada, took part in rallies in Monte Carlo (where 1st place in the 1600cc class was attained in 1972) and numerous other locations. In 1973 three endurance records for series-production cars over the distances 25000km, 25000mi, 50000km were beaten.

Apart from the production of the 125, other Fiats such as the 127 were also assembled at FSO. The brand name Polski Fiat had previously been used before the war, see the origins of Polski Fiat