The 1988–89 Football League season was Birmingham City Football Club's 86th in the Football League and their 26th in the Second Division. They finished in 23rd position in the division, expanded for this season to 24 teams as part of a restructuring process, so were relegated to the Third Division for the first time in the club's history. They entered the 1988–89 FA Cup in the third round proper and lost to Wimbledon in that round, were eliminated at the second-round stage of the League Cup by local rivals Aston Villa 7–0 over two legs, and lost in the first round of the Full Members' Cup, again to Aston Villa, this time by six goals to nil.
The top scorers in league matches were Steve Whitton and Colin Robinson with five goals apiece; Whitton scored six, if goals scored in all competitions are counted. The average attendance, of 6,289, was the lowest ever at St Andrew's.
In April 1989, Ken Wheldon sold the club to the Kumar brothers, owners of a Manchester-based fashion and leisurewear company. Dave Mackay was brought in as general manager, previous manager Garry Pendrey refused to stay on as part of Mackay's staff, and Wheldon retained a seat on the board while Samesh Kumar became chairman.[