The company was started in 1958 by Charles S. Roberts following the success of his wargame Tactics. With Tactics, Roberts created a new type of board game based on actual war-like scenarios and strategies. This sort of game had previously existed (H. G. Wells had written a set of rules called Little Wars), but they had exclusively used miniature figures and constructed scale terrain.

Avalon Hill pioneered many of the concepts of modern recreational wargaming. These include elements such as the use of a hexagonal grid, zones of control (ZOC), stacking of multiple units at a location, an odds-based combat results table (CRT), terrain effects on movement, troop strength, troop morale, and board games based upon historical events. Complex games could and did have play lasting for days or even weeks, and AH set up a system for people to play games by mail.

In the 1970s, Avalon Hill branched out from wargames to publish a number of tabletop sports simulations, including the popular Statis Pro line which was based on the names and statistics of actual players. The company discontinued most of these products in the early 1990s as the computer versions of similar games began to emerge. The company also produced a number of stratgey games that had nothing to do with sports or war-titles like Point of Law, Shakespeare, TV Wars and Stocks and Bonds.

Avalon Hill became a subsidiary of Monarch Avalon Printing in 1962 (as a way of repaying debts incurred by Roberts), which then ran it for the next 36 years. After some costly legal missteps in 1997 and 1998, Monarch decided to get out of the gaming business, disbanding Avalon Hill in the summer of 1998. Hasbro Games purchased the rights to the Avalon Hill games and back inventory and the name "Avalon Hill." Hasbro now publishes a select number of old Avalon Hill games. Several individual games were licensed to interested publishers. The largest number of the most popular games were licensed to Curt Schilling's Multi-Man Publishing.

Hasbro has also released a few new games under the Avalon Hill name, and has added the Avalon Hill name to older games like Axis and Allies which were not originally made by Avalon Hill.