The earliest material evidence of indigo dye are traces found in textiles preserved in Egyptian tombs dating to the late Bronze Age. The earliest literary mention occurs in the Atharvaveda at the start of the first millennium BCE. It appears later in Periplus of the Erythraean Sea, a navigational text from the first century CE. A detailed description of the dye-making process was recorded around the same time by the Roman writer Pliny the Elder, suggesting that indigo-dyed textiles were being traded across the Indian subcontinent, West Asia and around the Mediterranean sea.

The indigo trade flourished further after the consolidation of the Abbasid Caliphate in West Asia in the eighth century CE and the resulting growth in Indian Ocean commerce. The genizah documents — a set of over four hundred thousand papers found in Fustat, Egypt, containing commercial and administrative records from the ninth to nineteenth centuries — suggest a thriving indigo trade in the early medieval period. The documents even used the Sanskrit word for indigo, nili, as a suffix for the names of some Arab merchants who traded the dye.

Sanjan, a port in Gujarat that exported indigo, was a key junction in early medieval trade networks. By the late medieval period, Kabul, Afghanistan, Aleppo, Syria and Jeddah had also emerged as major nodes, distributing indigo to Central Asia and Persia, Ottoman Turkey and the eastern African coast, respectively.

French and British involvement in the trade took place in the Levant, where indigo prices were set for Mediterranean markets and, by extension, the rest of Europe. Despite being a very expensive dye, indigo frequently out-competed local European dyes such as woad due to its potency and fastness, leading to it being banned at various times between the sixteenth and eighteenth centuries in France, Norway and Britain.

For most of the medieval period, parts of present-day Gujarat, Rajasthan and coastal Pakistan produced the bulk of indigo from the subcontinent. From the sixteenth century onwards, mercantile ventures by the Portuguese Estado da India and the British and Dutch East India Companies traded indigo from these regions. Production later shifted to Bengal as the British East India Company emerged as a ruling power in the region.

British policies in Bengal, such as the Tinkathia system, made it mandatory for landowners to grow indigo in at least three kathas (a unit of land measurement) in each bigha (1 bigha = 20 kathas) of their land. These landowners (or indigo planters, as they were then known) enlisted the services of agricultural workers who were often made to cultivate Indigofera instead of food crops. While indigo planters and British traders made considerable profits by exporting indigo to Europe and Britain, workers were compensated poorly and forced into debt, sometimes even starvation. Indigo plantations were also set up in other colonies using similar policies, particularly the West Indies. During the Indigo Revolt of 1859, farmers from Chaugacha and other parts of Bengal staged a violent uprising against planters and zamindars. The human toll of indigo cultivation, especially in Bengal, has since been remembered as a symbol of colonial exploitation.

In the late nineteenth century, Badische Anilin- und Soda-Fabrik (BASF), a chemical factory in Germany, developed and began the mass production of synthetic indigo. By 1914, natural indigo comprised only four percent of the global indigo usage, and despite minor revivals, it continues to have a niche presence today. The vast majority of indigo is now synthetic and is used for dyeing denim, although some natural indigo continues to be produced in south India, particularly Karnataka.

More recently, freeze-dried indigo in its crystalline reduced state has become commercially available, shortening the dyeing process considerably due to its solubility in water. In addition to being used as a dye, indigo can be made to react with sulphuric acid to form a salt that is used as a colourant for food and pharmaceutical products.