Retro Studios was founded in 1998 by Jeff Spangenberg as an alliance between Iguana Entertainment and Nintendo. Spangenberg, founder of Iguana Entertainment was looking to create exclusive titles for the upcoming GameCube aiming at an older demographic. Spangenberg opened an office in Austin, Texas in early 1999, staffing 25 people.

The company began working on four different games for the upcoming GameCube, an untitled Action-Adventure game, a vehicular combat game called Car Combat, an American football simulator called NFL Retro Football, and a role-playing game called Raven Blade. In 2000, Nintendo sent producer Shigeru Miyamoto to Retro Studios office in Austin, TX to demo the games. Miyamoto was disappointed with all of the titles with the exception of the Action-Adventure game engine. Miyamoto seen potential in the game engine and suggested that it could be used to develop a new title in the Metroid series.

Nintendo granted Retro Studios the license to create Metroid Prime resulting in the cancellation of all four games to focus their resources on the creation of Metroid Prime, the first Metroid title to be developed outside of Japan. On May 2, 2002, Nintendo secured $1 million worth of Retro Studio stocks from Spangenberg and reclassified the company as a first party developer and division of Nintendo. The development team completed the game and released it on November 17, 2002 in North America to universal critical acclaim. The game became a commercial success selling over two million units worldwide.

The success of Metroid Prime led Retro Studios to work on two sequels, and later to become involved with reviving the Donkey Kong series with Donkey Kong Country Returns. In 2008, Shigeru Miyamoto asked fellow producer Kensuke Tanabe to recommend a studio that could develop a new Donkey Kong game, and Tanabe recommended Retro Studios. They accepted the task and started development of Donkey Kong Country Returns. Retro Studios has been very successful with all the games they have released and after Nintendo was not pleased with the progress of Metroid Prime 4 which was in production by another developer, they asked Retro Studios to step in. It was announced on January 25, 2019 that development of Metroid Prime 4 was being restarted, and that Retro Studios would now be developing it with Tanabe once again.