The Panzer III was intended as the primary battle tank of the German forces. However, when it initially met the KV-1 and T-34 tanks it proved to be inferior in both armour and gun power. To meet the growing need to counter these tanks, the Panzer III was up-gunned with a longer, more powerful 50-millimetre gun in response to increasingly better armed and armoured opponents.and received more armour but still was at disadvantage compared with the Soviet tank designs. This new variant of Panzer III was denominated Panzer III Ausf. M.

The Panzer III Ausf. M had the 50 mm KwK 39 L/60 as its main armament, giving it the firepower to go against the Allied tanks T-34s and M4 Shermans, and two 7.92mm MG 34 machine guns as secondary armament. It was powered by the 300 PS (221 kW), 12-cylinder Maybach HL 120 TRM engine. Regulated top speed varied was around 40 km/h. The range was generally around 155 km.

The Panzer III Ausf. M had an additional layer of offset 20 mm homogeneous steel plate on the front hull and turret, and an additional 5 mm Schürzen spaced armour on the hull sides, and 8 mm on the turret sides and rear. This additional frontal armor gave the Panzer III frontal protection from most British and Soviet anti-tank guns at all but close ranges or HEAT rounds fired at it on those plates, as it dissipates the penetration power before striking the hull. However, the sides were still vulnerable to many enemy weapons, including anti-tank rifles at close ranges.

The Panzer III Ausf. M mounted a new wading equipment, which allowed wading up to depth of approximately 1.3m, in contrast to previous 0.8-0.9m. This led to all air inlets and outlets as well as other openings and joints being sealed, while modified muffler with closure-valve was installed high on the hull rear.

The tank's length reached a total of 6,410 mm, including its cannon. The escape hatches in the side of the tank's hull were removed. This allowed the tank to carry 98 shells instead of the earlier 84. The smoke generators in the tank's rear were replaced with six mortars for launching 90 mm NbK smoke grenades. Schutzen side skirts increased the width of the tank to 3,100 mm.

The Panzer III Ausf M were used to replace losses in frontline combat, taking part in the Battle of Kursk and the defense of Sicily, although by that time its main 50 mm gun was of little use to the fight against tanks. Between 1942 and 1943 were built 250 units. 

Tanks of this variant were used en masse in the summer of 1943, during the fighting in the Kursk Bulge area. At that time, about 60% of the German tanks on the Eastern Front were of this variant. After suffering heavy losses, the remaining tanks were converted into command vehicles, flame tanks, or self-propelled StuG III anti-aircraft guns.