Portable MP3 players had existed since the mid-1990s, but Apple found existing digital music players "big and clunky or small and useless" with user interfaces that were "unbelievably awful". They also identified weaknesses in existing models' attempt to negotiate the trade-off between capacity and portability; flash memory-based players held too few songs, while the hard drive based models were too big and heavy. To address these deficits, the company decided to develop its own MP3 player.

At Apple CEO Steve Jobs’ direction, hardware engineering chief Jon Rubinstein recruited Tony Fadell, a former employee of General Magic and Philips, who had a business idea to invent a better MP3 player and build a complementary music sales store.

The name iPod was proposed by Vinnie Chieco, a freelance copywriter, who (with others) was contracted by Apple to determine how to introduce the new player to the public. After Chieco saw a prototype, he was reminded of the phrase "Open the pod bay doors, Hal" from the classic sci-fi film 2001: A Space Odyssey, referring to the white EVA Pods of the Discovery One spaceship. Chieco's proposal drew an analogy between the relationship of the spaceship to the smaller independent pods and that of a personal computer to its companion music player.

The product (which Fortune called "Apple's 21st-Century Walkman") was developed in less than one year and unveiled on October 23, 2001. Jobs announced it as a Mac-compatible product with a 5 GB hard drive that put "1,000 songs in your pocket."