Development began in January 1993 by Sega Technical Institute in California, shortly after the release of Sonic the Hedgehog 2. It was initially developed as an isometric game similar to what would eventually become Sonic 3D Blast (1996), but became a conventional 2D platform game due to time constraints. Sonic 3 was developed simultaneously with Sonic & Knuckles; they were planned as a single game until time constraints and cartridge costs forced the developers to split it. The Sonic 3 cartridge can be attached to an adapter on the Sonic & Knuckles cartridge, creating a combined game, Sonic 3 & Knuckles. The pop musician Michael Jackson composed portions of the soundtrack, but left the project and went uncredited; his music was replaced in some rereleases.

Sonic 3 was released in North America and Europe in February 1994, and in Japan in May. As with its predecessors, it was a critical and commercial success, with critics seeing it as an improvement over previous installments. Sonic 3 and Sonic & Knuckles sold a combined four million copies worldwide, placing them among the bestselling Genesis games. They have been rereleased in various Sega and Sonic compilations.