The XLR's Northstar V-8 VVT is a 90-degree, DOHC, four-valves-per-cylinder engine featuring an aluminum block and cylinder heads, and a valvetrain configuration with roller finger followers. The engine has been extensively re-engineered for the luxury roadster, and it marks the Northstar's first adaptation to rear-wheel-drive (RWD) and all-wheel-drive (AWD) configurations.
Other Northstar firsts on the XLR include four-cam continuously variable valve timing (VVT); electronically controlled, hydraulically actuated intake and exhaust cam phasers on all four camshafts for extra control; electronic throttle control (ETC); low restriction intake and exhaust manifolds and cylinder head ports; close coupled catalytic converters mounted directly adjacent to the exhaust manifolds; and a new air induction system, redesigned for enhanced capacity and noise attenuation. It also has a more powerful engine control module (ECM) and high-speed local area network (LAN) communication system dedicated to engine and transmission control, a new engine-mounting system and more rigid block structure for outstanding operating smoothness and quietness.

The V-8 offers smooth, refined performance throughout its entire operating range. It is quiet, yet tuned to give the driver feedback from the environment. It operates even more cleanly and efficiently than its predecessors, with excellent reliability and durability. The XLR features the first longitudinal application of the 4.6L Northstar V-8.

The V-8 is mated to the Hydra-Matic 5L50-E five-speed automatic transmission. Developed to manage the high torque and horsepower of the engine, it is one of the most technologically advanced transmissions on any highway or autobahn in the industry. The 5L50-E transmission is a modification of the Hydra-Matic 5L40-E transmission used in Cadillac CTS. It offers three performance features normally found individually on various high-performance American and European luxury sport sedans: driver shift control, performance algorithm shifting and performance algorithm liftfoot.

Another advantage of Cadillac's roadster not shared by the competition is its rear-mounted transmission. This helps give the XLR a virtual 50/50 front-to-rear weight distribution for superior balance, as well as providing occupants unusually roomy footwell space.
Compared to the Mercedes-Benz SL500, Jaguar XK8 and Lexus SC430, the XLR is not only the lightest vehicle at approximately 3,650 pounds (1,656 kg), but it also boasts the longest wheelbase, widest track, lowest height and most horsepower.