The information on this page has been compiled from many subscribers of the BMW E21 Digest. Thanks to all of you who helped!
This article is going to assume that you are installing a euro-spec E21 323i engine into any four cylinder E21 body, US or euro. In reality, most of this information is the same for the installation of any BMW small single cam six cylinder motor (2.0 liter, 2.3 liter, 2.5 liter, 2.7 liter eta or custom stroker motor). For additional details on using an E30 325i motor, read the other engine swap page after you've read this one.
I'm going to assume that you are going about this the difficult way; i.e. you have the neccessary 323i parts sitting on the floor in your garage. The easiest way to go about this is to buy a rusty or rear ended 323i to pull the parts from as you go. That way you have ALL the goodies and can see what needs to be done. But otherwise...
Basic procedure: Unbolt and replace the engine, transmission and front crossmember with the appropriate 323i parts. Sounds simple, right?
The parts that you will probably forget to acquire with the engine, transmission, and crossmember: Radiator, tachometer, injection parts and driveshaft. (These all can be worked around, but it's much easier and cheaper to have the right stuff to start with.)
Some details to consider:
Crossmember. You MUST have the front crossmember (subframe) from a six cylinder E21 (either 320/6 or 323i). Don't bother starting this project without it.
Transmission. The six cylinder engine requires a different transmission which mounts farther back in the car than the four cylinder gearbox. The easiest to use is a box from an E21 320/6 or 323i. With these boxes there are no hidden "issues" to deal with, but since the only cars they came in were those two models thay can be hard to find.
An alternative is to use the five speed from a 528e or e30 325e/i, but it is not a simple bolt-in job. Read the E30 Transmission Swap page for details.
Cooling system. What model years are the donor car and recipient? Early cars (pre-1980) do not have room for an engine driven fan. If the recipient is an early car, you must rig for an electric pusher fan. Late 4 cylinder bodies have spot-welded radiator mounts that can be removed to allow the radiator be mounted an inch or so forward, allowing an engine driven fan to fit. Regardless of the year of car, my understanding is that the 323i radiator is different than that of the four cylinder cars. Getting the cooling system right may take some fiddling. The proper 323i radiator and hoses are readily available new if you didn't get them with the engine.
Early cars don't have much room under the hood. This problem is related to the radiator mounts (see above). Once you have the engine and transmission out of your 320i and the crossmember changed, on the early cars the six cylinder engine goes in first, then the transmission can be installed from underneath. The added length of the six means that the engine cannot be moved forward far enough to slide it on or off of the transmission input shaft, so the transmission has to come out first any time a six cylinder engine is removed. For the same reason the transmission MUST be installed after the engine is already in place. (None of this necessarily applies to the later cars with recessed radiator mounts.)
Exhaust. I love the look of the 323i dual exhaust, but fabricating the mounts for the right rear muffler might be a pain on a US 320i body. Consider using 320/6 exhaust to simplify things.
Injection. The 323i K-jet is very similar to the 320i K-jet, just more injectors, so installation and wiring is not difficult. But make sure you get the 323i fuel distributor, you'll need it! Also remember that you're on your own regarding smog controls with a true 323i engine and injection. The six cylinder cars did not use an oxygen sensor, and never used a catalyst from the factory, so keep this in mind.
Other alternatives for the injection exist. L-Jetronic can be used (325e manifold with 528i brain and attendant parts). But the best solution - especially if you need to be smog legal - is probably to use a 325i engine with Motronic and catalyst. Finish reading this page, then read the other engine swap page.
Driveshaft. If you didn't get the 323i driveshaft, you'll need to have your shaft shortened professionally.
Tachometer. You need a six cylinder tach. The 323i tach is a bolt in swap, but can be tough to find. A tach from other BMW six cylinder models will work, but again may require you to be a bit creative in the mounting.
Air conditioning. If your 320i has air conditioning, be prepared to do some re-engineering of the A/C system. The A/C compressor and/or mounting bracket may need to be replaced with something different, the hoses may need to be re-routed and/or re-configured, and the condenser may need to be moved or changed to accommodate the radiator changes. Since more US-spec cars have A/C than euro-models, it is likely that you may have to make it up as you go. As an example, the A/C on my 323i was installed here in the USA and was definitely a "roll your own" type of affair. The compressor and mounting bracket appears to be from a 325e, the interior parts are all 320i, the hoses were custom made and the condenser was held in with Zip ties! Worse, the installer (if you can call him that) did not install an electric fan to maintain air flow at low speeds. When I bought the car the A/C didn't work because the condenser rattled around enough to poke a hole in itself (Zip tie mounting), but I'm betting that it never worked that well when new without the auxillary fan.
Future parts availability. There are some parts for a 323i engine that are specific to E21s with that engine. All injection parts (other than the injectors themselves and the air filter element) fit ONLY E21 323i. Ignition parts, specifically plug wires and the distributor itself. Cooling system, including hoses. All vacuum and breather hoses (most are molded and must come from BMW). Some of these problems are lessened if you use a 325i setup, others may be worse as you have to "make it up as you go."
In sum, unless you're good at fabrication and have easy access to a machine shop, it is best to have a 323i to pull parts from as you go. Doing it without having a whole car there to use as a reference is a good way to ensure that the job takes a LONG time.