The Israeli Arms industry has its origins early in the history of Yishuv, with the first product being hand grenades produced during World War I. In the 1930s, the Haganah established an official factory for producing grenades and later expanded to produce other explosives. By 1938, they were also manufacturing mortars. In 1943, Defense Industries began producing Sten guns (machine guns). During the War of Independence, the Military Industries developed an impressive list of armaments and, more importantly, ammunition. In 1950, an Israeli army officer named Uzi Gal developed a new machine gun known as the Uzi, which became ubiquitous and was the first Israeli arms to be exported and used worldwide.

In 1953, Israel Aircraft Industries was established. Originally, the company was set up as a repair facility and used by the air force and later by El Al for maintenance and repairs on their planes. In 1960, the Israeli air force was in need of a training aircraft and selected the French-made Fouga Magister. Aérospatiale granted IAI a license to produce the plane, and on July 7, 1960, IAI delivered the first plane to the air force. In later years the IAI built a range of aircraft and missiles for the IDF. It also has a division to maintain aircraft that also does conversions of aircraft to freighters.