Luxury brands continue to shrink their vehicles, and the Audi Q3 is the latest to join an emerging boom in compact premium SUVs.

The Audi Q3 arrives to provide direct competition to the BMW X1 and Range Rover Evoque, though the manufacturer from Ingolstadt, Germany, believes its latest product will follow other SUVs by luring buyers from passenger car segments.

Audi took its time to produce its first SUV – the Audi Q7 in 2006 – but hasn’t wasted any time since, expanding its luxury soft-roader line-up to three within five years (Q3 was released last year in Europe).

An even smaller SUV based on the Audi A1 is expected – and, sorry, no prizes for guessing the model name – but that’s another review for another day.

Here, the Q3 is a relative of the Volkswagen Tiguan, with a slightly wider footprint but sharing an almost identical wheelbase, though from nose to tail it wipes off a noticeable 244mm from the length of Audi’s mid-sized SUV, the Audi Q5.

There are no surprises with the styling, which is either a positive or negative depending on your viewpoint. The Q3 is clearly recognisable as an Audi for its classy but conservative design, with the smallest Q model following the Q5 in looking more like a hatchback on steroids than the more SUV-like (but still ungainly-looking) Q7.

Audi’s Auto Union heritage continues in the large, ‘single frame’ grille that again dominates the front end, and the Q3 features another Q design trait at the rear with the wide tail-gate that incorporates the entire tail-light housings.

The rear of the Q3, though, drops far more sharply than even the Q5’s roof, to give the baby Q a sportier presence.

Structurally, the Audi Q3 is assembled with a higher proportion of stronger, lighter and more expensive steel than the Tiguan, though the luxury compact SUV of the VW Group does share some technology such as driver assist features and engines with the Tiguan that starts much lower, from below $30,000.

Lighter kerb weights, though, ensure any directly comparable Q3 is both faster and more efficient than its VW twin.

The Audi Q3 range also starts with the first front-wheel-drive variant in the copmany’s Q-badged series – a 103kW 2.0 TDI costing from $44,990.

Click here to read more details on the full Audi Q3 range.

We tested the three other models in the line-up, which include a $47,000 125kW TFSI, $54,500 130kW 2.0 TDI and range-topping $56,000 155kW 2.0 TFSI.

All engines offer excellent refinement and levels of performance that at worst is decent and at best excellent, so the choice comes down to your individual preferences and priorities.

If low fuel bills are top of the list, then the base diesel consumes just 5.2 litres per 100km. You’ll just have to trade off quick acceleration, with this model taking nearly 10 seconds to reach 100km/h on the speedo from standstill.

Looking for the sportiest option? Well, that’s easily the 155kW 2.0 TFSI flagship.

The 2.0-litre four-cylinder turbo, perhaps most famous for being found in the VW Golf GTI hot-hatch, revs smoothly with zeal and offers a sweet note as the tachometer swings eagerly towards the engine’s redline.

Despite the Q3 2.0 TFSI weighing 185kg more than the GTI, it matches it for performance, with a 0-100km/h time of 6.9 seconds.

In-gear performance, more importantly for most drivers, is equally rapid, with the standard seven-speed dual-clutch auto shifting through the gears with almost imperceptible changes but notable swiftness.

We averaged 8.7L/100km for fuel use against the official 7.7L/100km, a result that was actually better than the less powerful 125kW 2.0 TFSI we also tried.

The lower-power petrol is nowhere near as quick or responsive as the 155kW Q3, though it’s still a worthy engine that’s delightfully smooth and capable of providing decent acceleration – as well as saving buyers up to $9000 over the flagship Q3.

If you want to combine strong performance and reduced consumption, it’s difficult not to be persuaded by the 130kW 2.0 TDI, however.

It provides almost effortless pace while, during our long stint, using an average of 7.5L/100km despite less time spent on fuel-saving freeway sections compared to the others.

Regardless of engine, the Audi Q3 proves to be a baby SUV that is more than capable of delivering relaxing progress for long journeys away from the city.

The VW Golf origins of its underpinnings also shine through, with the Q3 providing the best ride yet of Audi’s expanding range of SUVs despite feeling firmer than you might expect for a luxury model.

While the Q5 is fidgety and the Q7 lumpy, the Q3’s suspension deals expertly with surface irregularities, ensuring no nasty potholes, for example, intrude on cabin comfort.

(Though with the launch held mostly in rural Queensland, we’ll still reserve final judgment on ride until we test the Q3 in the city.)

The Q3 is also fun to drive if you encounter a series of bends, with a well balanced nature that makes it enjoyably chuckable. And there’s no shortage of grip from the tyres, though we were on optional 18-inch rubber rather than the standard 17s.

The Haldex all-wheel-drive system (also shared with Tiguan) is again effective in the Q3, allowing it comfortably tackle off-road excursions as long as they’re limited to dirt or gravel roads, or hilly fields that don’t offer too many tricky obstacles for what is still a relatively low ride height despite the advantage of the small Audi’s short overhangs.

The steering could better connect the driver to the road, and there’s noticeable kickback over mid-corner bumps, but otherwise most buyers will appreciate its smoothness, lightness and accuracy.

And although the Audi Q3 sits lower to the ground than either of its siblings, there’s still a seat high that’s more elevated than your typical hatch, and the good all-round vision that typically accompanies that, to please SUV hunters.

Those searching for a luxury vehicle on a lower budget won’t be disappointed by the Q3’s interior, either.

The Q3 shows how BMW didn’t quite get quality right with the X1, with the Audi presenting yet another interior masterclass in how to blend great design, gorgeous materials and simple ergonomics.

Bigger families would no doubt need to use the standard roof rack to accommodate all their luggage, but for other buyers among Audi’s target market – young singles, young couples or empty-nesters – the Q3 is surprisingly practical.

We found that a 5ft 11in adult can sit behind their own driving position and still have decent room for head and knees (the latter helped by scalloped front seatbacks).

The wide tail-gate opens to reveal commensurately wide access to the well-sized 460-litre boot, which expands to 1365 litres if you fold the 60/40 rear seats flat.

There are also useful metal tie-down points and a temporary steel spare wheel, though it would be preferable if the cargo cover shelf lifted up with the tail-gate rather than stayed in position (it can be removed).

The Audi Q3, then, offers a wealth of positives, not least its terrific blend of performance, refinement and comfort.

And our first encounter strongly suggests this is Audi’s most convincing SUV yet.