Led by manager Trevor Francis, the team repeated the previous season's fifth-place finish in the Football League First Division to qualify for the play-offs for a second consecutive season, but suffered another semi-final defeat, this time to Preston North End, losing 4–2 on penalties after drawing 2–2 over two legs. They were eliminated in the third round of the FA Cup, and reached the Football League Cup final for the first time since 1963, facing Liverpool. Liverpool took the lead in the 30th minute through Robbie Fowler, but Birmingham equalised in the last minute of normal time with a Darren Purse penalty. No further goals were scored in extra time, so the match was settled in a penalty shoot-out; Martin Grainger's and Andrew Johnson's penalties were saved, and Liverpool won 5–4 on penalties.

The top scorer for the season was Geoff Horsfield, with twelve goals in all competitions, of which seven were in the League; Marcelo also scored seven league goals.

French apparel manufacturers Le Coq Sportif remained Birmingham's kit suppliers for the third season in a row, and introduced a new kit for the season. Auto Windscreens remained the kit sponsors, also for the third consecutive season.

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