Late in 1985, Commodore released to the European market a new version of the C128 with a redesigned chassis resembling the Amiga 1000. Called the Commodore 128D, this new European model features a plastic chassis with a carrying handle on the side, incorporates a 1571 disk drive into the main chassis, replaces the built-in keyboard with a detachable one, and adds a cooling fan. The keyboard features two folding legs for changing the typing angle.
According to Bil Herd, head of the Hardware Team (aka the "C128 Animals"), the C128D was ready for production at the same time as the regular version. Working to release two models at the same time had increased the risk for on-time delivery and was apparent in that the main PCB has large holes in critical sections to support the C128D case and the normal case concurrently.
In the latter part of 1986, Commodore released a version of the C128D in North America and parts of Europe referred to as the C128DCR, CR meaning "cost-reduced". The DCR model features a stamped-steel chassis in place of the plastic version of the C128D (with no carrying handle), a modular switched-mode power supply similar to that of the C128D, retaining that model's detachable keyboard and internal 1571 floppy drive. A number of components on the mainboard were consolidated to reduce production costs and, as an additional cost-reduction measure, the 40 millimeter cooling fan that was fitted to the D model's power supply was removed. However, the mounting provisions on the power supply subchassis were retained, as well as the two 12-volt DC connection points on the power supply's printed circuit board for powering the fan.
A significant improvement introduced with the DCR model was the replacement of the 8563 video display controller (VDC) with the more technically advanced 8568 VDC and equipping it with 64 kilobytes of video RAM—the maximum amount addressable by the device. The four-fold increase in video RAM over that installed in the "flat" C128 made it possible, among other things, to maintain multiple text screens in support of a true windowing system, or generate higher-resolution graphics with a more flexible color palette. Little commercial software took advantage of these possibilities.
The C128DCR is equipped with new ROMs dubbed the "1986 ROMs," so-named from the copyright date displayed on the power-on banner screen. The new ROMs address a number of bugs that are present in the original ROMs, including an infamous off-by-one error in the keyboard decoding table, in which the 'Q' character would remain lower case when CAPS LOCK was active. Some software will only run on the DCR, due to dependencies on the computer's enhanced hardware features and revised ROMs.
Despite the DCR's improved RGB video capabilities, Commodore did not enhance BASIC 7.0 with the ability to manipulate RGB graphics. Driving the VDC in graphics mode continues to require the use of calls to screen-editor ROM primitives or their assembly language equivalents, or by using third-party BASIC language extensions, such as Free Spirit Software's "BASIC 8", which adds high-resolution VDC graphics commands to BASIC 7.0.