From it's first flight in 1954 the Boeing 707 had firmly established Boeing in the jetliner market. Design studies were begun by Boeing as early as February 1956 to find a suitable medium-range partner to the Boeing 707. Many configurations were studied, with nearly 70 reaching wind-tunnel testing. At one time a scaled-down B707 were considered but, eventually the Boeing Engineers concluded that an aircraft with 2 or 3 engines were the most suitable option based on cost. Three of the major US airlines differed in their choice: United Air Lines wanted four engines for safety, American Airlines was happy with two engines, whilst Eastern wanted tri-jet design similar in shape to the popular Caravelle.

One curious factor that influenced the decision was that under Federal Aviation Administration (FAA) law of the time four engined aircraft could descend to 200ft (61m) above the ground on a bad weather approach before having to initiate a go-around if the landing wasn't assured, but two engined aircraft could only descend to 300ft (91m). This extra 100ft (30m) often meant the difference between an aircraft landing at the destination or having to divert. After discussions with the FAA, three engined aircraft would fall under the same restrictions as four-engined types.

One of the problems with developing a three engined aircraft, was that no suitable American engine could provide the thrust needed. That led Boeing to look across the atlantic at the Rolls-Royce Spey engine, although it would offer the thrust needed, the American Airlines was not happy with an American aircraft having a non-American engine. Pratt & Whitney noticing that a new engine was needed for a potentially large market, began work on the JT8D-1 which would eventually power the B727.

The Boeing Board still had to be convinced. The Boeing 707 had still to turn in a profit so the company wasn't in the best of financial situation. Production would also be costly and the aircraft would be considerably more expensive than it's turboprop competitors. With Douglas' launch of the DC-9 the decison of launching the aircraft became harder, but there were sufficient interest in the aircraft. And so the design process was commenced.

One of the biggest challenges called for the aircraft being able to operate out New York's La Guardia, which at that time had a runway of only 1,480m (4,860ft). Eventually the designers chose to implement triple-slotted trailing edge flaps along with leading edge flaps and slats. These enabled the aircraft to have slower approach and touch down speeds. The high T-tail design also meant that when the wing spoilers where deployed, there was less buffeting than would be encountered by an aircraft with a conventional tailplane. The three engines were put in a cluster at the rear, which turned out to be cheaper as the associated engine systems were closer together. In additon the cabin noise on take-off and landing was less noticeable making the ride more enjoyable for the passengers.

The basic design was completed with a six-abreast seating arrangement, giving a air of roominess to the cabin. February 1960 it was time for a decision to either go ahead with the project or shelve it. President William Allen believed the aircraft would be a success, saying it was a "pilot's airplane", he reached a compromise; if the aircraft could receive orders for $1 billion by December, the project would continue. This gave the sales and marketing staff at Boeing with quite a task, which they met admirably. By the end of November they had secured orders from Eastern Airlines for 40 aircraft and United Air Lines which ordered 20 with options for 20. The figure was less than required, but with such reputable US carriers the project was given a go-ahead with the assumption that further orders would follow.

The prototype was rolled out in November 1962, and first flew from Renton on February 9, 1963. Launch customers Eastern and United Air Lines began to receive aircraft in late 1963. Other orders received at the time had included American Airlines (25), Trans World Airlines (10), first overseas customer Lufthansa (12), Ansett Australia (2) and Trans Australian Airlines (2). The first commercial service took place on February 1, 1964, when Eastern Airlines flew from Miami to Washington and Philadelphia. The aircraft airfield performance where duely demonstrated on a South American tour, when it became the first jet aircraft to operate out of one of the worlds highest placed airports, La Paz in Bolivia, some 4,071m (13,358ft) above sea level. The aircraft's Auxilary Power Unit (APU) alonmg with it's aft staircase gave the aircraft an independent operating ability, making it easier to operate out of smaller airfields.