As early as 1964 Lotus recognized the need to find a replacement for the Lotus Twin Cam engine. Colin Chapman issued a brief that listed the features wanted in a new engine, including `high efficiency, flexibility, torque and smoothness which was suitable for hand assembly'. Unable to find this combination in any existing engine the company used outside consultants and internal resources to define the characteristics of the next Lotus engine. After having rejected a 120° V6 as too wide for Lotus' chassis and a 60° V6 as too tall for their bodywork, the engineers determined that a 2-litre inline-four engine was the optimal choice. This future engine would have four valves per cylinder (16 valves total) operated by belt-driven dual overhead cams and develop 150 hp (111.9 kW). The block would be angled 45° from vertical to permit a lower bonnet and simplify development of a 4-litre V8 version for future use in Indianapolis racing.
The design team was headed by Steve Sanville, Lotus' Head of Powertrain Development, and Ron Burr, formerly of Coventry Climax. Even though the team was able to complete the design for the new cylinder head and start work on the engine block and crankshaft it became apparent that Lotus' racing program and concurrent move to a new larger factory would limit the resources available for the new engine project.