Horacio Pagani, who formerly managed Lamborghini's composites, founded Pagani Composite Research in 1988. This new company worked with Lamborghini on numerous projects, including the restyling of the 25th Anniversary Countach, the Lamborghini LM002, the P140 design concept, and the Diablo. In the late 1980s, Pagani began designing his own car, then referred to as the "C8 Project". Pagani planned to rename the C8 the "Fangio F1" to honour his friend, the five-time Argentinian Formula One champion Juan Manuel Fangio.
In 1991 Pagani established Modena Design to meet the increasing demand for his design, engineering, and prototyping services. In 1992, he began construction of a Fangio F1 prototype, and by 1993, the car was being tested at the Dallara wind tunnel with positive results. In 1994, Mercedes-Benz agreed to supply Pagani with V12 engines. The cost of these cars are at a total of 2.3 million dollars.
In 2005, Pagani announced that it planned to triple its production output within the next three years, and to enter the US market in 2007.