In early December 1891, Dr. James Naismith, a minister on the faculty of a college for YMCA professionals (today, Springfield College) in Springfield, Massachusetts, USA, sought a vigorous indoor game to keep his students occupied and at proper levels of fitness during the long New England winters. After rejecting other ideas as either too rough or poorly suited to walled-in gymnasiums, he wrote the basic rules and nailed a peach basket onto an 10-foot (3.05 m) elevated track. In contrast with modern basketball nets, this peach basket retained its bottom, so balls scored into the basket had to be poked out with a long dowel each time. A soccer ball was used to shoot goals.

Dr. Naismith's handwritten diaries of the time indicate that he was nervous about this invention, which incorporated rules from a Canadian children's game called "Duck on a Rock", as many had failed before it. Dr. Naismith himself was originally from Canada.

Naismith's new game is quite similar to the game of team handball, which had already been invented in the early 1890s.

The first official basketball game was played in the YMCA gymnasium on January 20, 1892 with nine players, on a court just half the size of a present-day National Basketball Association (NBA) court. "Basket ball", the name suggested by one of Naismith's students, was popular from the beginning.

Women's basketball began in 1892 at Smith College when Senda Berenson, a physical education teacher, modified Naismith's rules for women.

Basketball's early adherents were dispatched to YMCAs throughout the United States, and it quickly spread through the USA and Canada. By 1895, it was well established at several women's high schools. While the YMCA was responsible for initially developing and spreading the game, within a decade it discouraged the new sport, as rough play and rowdy crowds began to detract from the YMCA's primary mission. However, other amateur sports clubs, colleges, and professional clubs quickly filled the void. In the years before World War I, the Amateur Athletic Union and the Intercollegiate Athletic Association (forerunner of the NCAA) vied for control over the rules for the game.

Basketball was originally played with a soccer ball. The first balls made specifically for basketball were brown, and it was only in the late 1950s that Tony Hinkle, searching for a ball that would be more visible to players and spectators alike, introduced the orange ball that is now in common use.

Dribbling, the bouncing of the ball up and down while moving, was not part of the original game except for the "bounce pass" to teammates. Passing the ball was the primary means of ball movement. Dribbling was eventually introduced but limited by the asymmetric shape of early balls. Dribbling only became a major part of the game around the 1950s as manufacturing improved the ball shape.

Basketball, netball, dodgeball, volleyball, and lacrosse are the only ball games which have been identified as being invented by North Americans. Other ball games, such as baseball and Canadian football, have Commonwealth of Nations, European, Asian or African connections.