In 1986, Commodore released the 64C computer, which is functionally identical to the original. The exterior design was remodeled in the sleeker style of the Commodore 128 and the 64C uses new versions of the SID, VIC-II, and I/O chips. Models with the C64E board had the graphic symbols printed on the top of the keys, instead of the normal location on the front. The sound chip (SID) was changed to use the MOS 8580 chip, with the core voltage reduced from 12V to 9V. The most significant changes include different behavior in the filters and in the volume control, which result in some music/sound effects sounding differently than intended, and digitally-sampled audio were almost inaudible.

The 64 KB RAM memory went from eight chips to two chips. BASIC and the KERNAL went from two separate chips into one 16 KB ROM chip. The PLA chip and some TTL chips were integrated into a DIL 64-pin chip. The "252535-01" PLA integrated the color RAM as well into the same chip. The smaller physical space made it impossible to put in some internal expansions like a floppy-speeder. In the United States, the 64C was often bundled with the third-party GEOS graphical user interface (GUI)-based operating system, as well as the software needed to access Quantum Link. The 1541 drive received a matching face-lift, resulting in the 1541C. Later, a smaller, sleeker 1541-II model was introduced, along with the 800 KB 3.5-inch microfloppy 1581.

SID is short for Sound Interface Device. It is the name of the sound chip that was used in the VC10, the commodore 64 and the Commodore 128. SID was developed by Bob Yannes, an employee of MOS Technology. Bob was not only an engineer but also knew a lot about music. His intention was to create a different sound chip than other devices at the time. He implemented a subtractive synthesis chip. The chip's distinctive sound is easily recognized and was clearly ahead of the ocmpitition. The SID combines analog and digital circuitry that cannot be 100% emulated, even today.

The VIC-II, or Video Interface Chip II, is a chip from MOS Technology. There are a few variants:

• For NTSC: 6567/8562/8564
• For PAL: 6569/8565/8566

The VIC-II generates Y/C signals and DRAM refresh signals for the Commodore 64, Commodore MAX, and Commodore 128 computers. It is the successor of the original VIC chip used in the VIC-20 computer.

Features:

• 16 KByte address space for screen, character and sprite memory
• 320x200 graphics in 16 colors
• 40x25 Text resolution
• Capable of 8 sprites per scanline (24x21 or 12x21 multicolor sprites)
• Raster interrupt
• Smooth Scrolling
• Independent DRAM refresh
• BUS mastering for the 6502-style bus. CPU and VIC-II can access the bus during alternating half-clock cycles.

Programmers quickly learned that the VIC-II was more capable than the specifications would indicate. By manupulating the 47 different control registers, and by using machine code hooked into the raster interrupt routine (or the scanline interrupt), the chip can be programmed to do sprite multiplexing. This allows for more than 8 concurrent sprites on screen. It basically allows for the screen to be split up in different slices, giving each slice its own scrolling, resolution, color and sprite properties. This even allowed programmers to use graphics outside the upper and lower borders of the screen.

The 6510 is an 8-bit MicroProcessor designed by MOS Technology. It is a modified version of the very successful 6502. The primary change in the 6510 was the addition of an 8-bit general purpose I/O port, altbough only six I/O pins were available in the most common version of the 6510.

The extra I/O pins were used for various purposes. In the Commodore 64, they were used to control bank switching, the signal lines for the Datasette tape recorder.