Palam Airport, known as RAF Palam when established, was the precursor to the modern-day Indira Gandhi International Airport. Founded in 1943 during the Second World War by the imperial British government to support Allied military operations in Asia, it served as a staging ground for Royal Air Force flights. After the British withdrawal from India, the Royal Indian Air Force, which was later rechristened as the Indian Air Force, took over the airport.

In 1962, commercial passenger operations were relocated from Safdarjung Airport (Delhi's first airport) to Palam Airport. At that time, Palam had a peak capacity of approximately 1,300 passengers per hour. In 1979–80, a total of 30 lakh (3 million) domestic and international passengers flew into and out of Palam Airport. Owing to an increase in air traffic in the '70s and '80s, an additional terminal with nearly four times the area of the old Palam terminal was constructed. On 2 May 1986, with the inauguration of the new international terminal, designated Terminal 2, the airport was renamed Indira Gandhi International Airport. However, the airport's ICAO code, VIDP, remains associated with its old name.

The old domestic airport (Palam) is known as Terminal 1 and was divided into separate buildings – 1A, 1B, and 1C. Blocks 1A and 1B were used to handle international operations while domestic operations took place in Block 1C. Block 1A and 1B later became dedicated terminals for domestic airlines and are currently closed down. It is planned that they will be demolished after the construction of newer terminals. Block 1C was also turned into a domestic arrivals terminal, and was rebuilt and opened on 24 February 2022. The newly constructed domestic departures block 1D is now used by domestic low-cost airlines (IndiGo, and SpiceJet). There is also a separate technical area for VIP passengers. The domestic arrivals terminal 1C was demolished and rebuilt into a brand-new domestic arrivals terminal. For this expansion work, GoAir and select flights of IndiGo were moved to Terminal 2 as well as select flights of SpiceJet and IndiGo to Terminal 3.

In October 2001, Canada 3000 commenced a flight to Toronto. This was the first nonstop service between India and North America. Russia's decision to open its airspace after the Cold War allowed the airline to save time by flying a direct route over the Arctic. Even though the September 11 attacks had precipitated a global decline in air travel, Canada 3000 was hoping that the service would help it improve its financial position. Nevertheless, the company collapsed one month later.

Significant growth in the Indian aviation industry led to a major increase in passenger traffic. The capacity of Terminal 1 was estimated to be 71.5 lakh (7.15 million) passengers per annum (mppa). The actual throughput for 2005/06 was an estimated 1.04 crore (10.4 million) passengers. Including the then closed down international terminal (Terminal 2), the airport had a total capacity of 1.25 crore (12.5 million) passengers per year, whereas the total passenger traffic in 2006/07 was 1.65 crore (16.5 million) passengers per year. In 2008, the total passenger count at the airport reached 2.4 crore (23.97 million). To ease the traffic congestion on the existing terminals and in preparation for the 2010 Commonwealth Games, a much larger Terminal 3 was constructed and inaugurated on 3 July 2010. The new terminal's construction took 37 months for completion and this terminal increased the airport's total passenger capacity by 34 million.

Apart from the two budget domestic airlines handled by Terminals 1 and 2, all other airlines operate their flights from Terminal 3. In June 2022, Delhi International Airport became India's first to run entirely on Hydro Power and solar energy.