The concept of gathering all of the world's knowledge in a single place goes back to the ancient Library of Alexandria and Pergamon, but the modern concept of a general purpose, widely distributed, printed encyclopedia dates from shortly before Denis Diderot and the 18th century encyclopedists. The idea of using automated machinery beyond the printing press to build a more useful encyclopedia can be traced to librarian Charles Ammi Cutter's article "The Buffalo Public Library in 1983" (Library Journal, 1883, p. 211–217), Paul Otlet's book Traité de documentation (1934; Otlet also founded the Mundaneum institution, 1910), H. G. Wells' book of essays World Brain (1938) and Vannevar Bush's future vision of the microfilm based Memex in As We May Think (1945). Another milestone was Ted Nelson's Project Xanadu in 1973.

While previous encyclopedias, notably the Encyclopedia Britannica were book-based, Microsoft's Encarta published in 1993, was available on CD-ROM, and hyperlinked.

With the development of the web, many people attempted to develop Internet encyclopedia projects. An early proposal was Interpedia in 1993 by Rick Gates; but this project died before generating any encyclopedic content. Free software exponent Richard Stallman described the usefulness of a "Free Universal Encyclopedia and Learning Resource" in 1999. His published document "aims to lay out what the free encyclopedia needs to do, what sort of freedoms it needs to give the public, and how we can get started on developing it." On 17 January 2001, two days after the start of Wikipedia, the Free Software Foundation's GNUPedia project went online, competing with Nupedia, but today the FSF encourages people "to visit and contribute to [Wikipedia]".

Wikipedia was initially conceived as a feeder project for Nupedia, an earlier (now defunct) project to produce a free online encyclopedia, founded by Bomis, a web-advertising-selling firm owned by Jimmy Wales, Tim Shell and Michael E. Davis. Nupedia was founded upon the use of highly qualified volunteer contributors and an elaborate multi-step peer review process. Despite its mailing-list of interested editors, and the presence of a full-time editor-in-chief, Larry Sanger, a graduate philosophy student hired by Wales, the writing of content was extremely slow with only 12 articles written during the first year.

Wales and Sanger discussed various ways to create content more rapidly. The idea of a wiki-based complement originated from a conversation between Larry Sanger and Ben Kovitz. Ben Kovitz was a computer programmer and regular on Ward Cunningham's revolutionary wiki "the WikiWikiWeb". He explained to Sanger what wikis were, at that time a difficult concept to understand, over a dinner on 2 January 2001. Wales first stated, in October 2001, that "Larry had the idea to use Wiki software", though he later claimed in December 2005 that Jeremy Rosenfeld, a Bomis employee, introduced him to the concept. Sanger thought a wiki would be a good platform to use, and proposed on the Nupedia mailing list that a wiki based upon UseModWiki (then v. 0.90) be set up as a "feeder" project for Nupedia. Under the subject "Let's make a wiki", he wrote:

Wales set one up and put it online on 10 January 2001.

There was considerable resistance on the part of Nupedia's editors and reviewers to the idea of associating Nupedia with a wiki-style website. Sanger suggested giving the new project its own name, Wikipedia, and Wikipedia was soon launched on its own domain, wikipedia.com, on 15 January 2001.

The bandwidth and server (located in San Diego) used for these projects were donated by Bomis. Many current and past Bomis employees have contributed some content to the encyclopedia: notably Tim Shell, co-founder and current CEO of Bomis, and programmer Jason Richey.

In December 2008, Wales stated that he made Wikipedia's first edit, a test edit with the text "Hello, World!". The oldest article still preserved is the article UuU, created on 16 January 2001, at 21:08 UTC.

The project received many new participants after being mentioned three times on the Slashdot website,[citation needed] with two minor mentions in March 2001. It then received a prominent pointer to a story on the community-edited technologies and culture website Kuro5hin on 25 July. Between these relatively rapid influxes of traffic, there had been a steady stream of traffic from other sources, especially Google, which alone sent hundreds of new visitors to the site every day. Its first major mainstream media coverage was in the New York Times on 20 September 2001.