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Blue Byte Software was founded by Thomas Hertzler and Lothar Schmitt in Mülheim on October 1988. The first published game was the tennis simulation Great Courts, released in 1989 by Ubisoft (then called Ubi Soft). Blue Byte's first big success in Germany and Europe was the turn-based strategy game Battle Isle, completed in 1991. Inspired by the Japanese game Nectaris for the PC Engine, Battle Isle spawned numerous add-ons and sequels. The company's next big success followed in 1993 with the release of the managerial game Die Siedler, marketed internationally as The Settlers. Settlers also had numerous sequels and became the most well-known of Blue Byte's products.
Over the years, Blue Byte developed and/or published numerous innovative titles including Chewy: Escape from F5 and Albion, but most of them were not successful internationally. Efforts to break into the American market, usually aided with publishing by Accolade, failed and success was limited to Germany and parts of Europe. In 1995 a Chicago based entrepreneur named Julian Pretto traveled to Germany and convinced the founders to open a North American office. Following the successful release of Battle Isle 2020 in the United States, Pretto left the firm to pursue other interests. Three years later, Blue Byte moved from Chicago, Illinois, to its new facilities in Austin, Texas.
The popular turn-based strategy Battle Isle series from the early 1990s achieved cult status similar to Settlers but when revised in 1997 as a 3-D tactical game Incubation similar to UFO: Enemy Unknown and later in 2001 Battle Isle: The Andosia War, which tried to breach the gap between turn-based strategies and real-time strategies, it alienated many players who came to expect that the Battle Isle brand would represent traditional turn-based strategies.
In January 2001, Blue Byte was acquired by Ubisoft, and tasked to focus on Blue Byte's two most popular series. As of 2004, Blue Byte released the newest game of the Settlers series under the name Die Siedler: Das Erbe der Könige (literally "The Settlers: Heritage of Kings"), followed by several expansions. Recently, they announced a re-release of The Settlers II with updated graphics and gameplay to be available in autumn 2006. A downloadable demo is now available from their website. Ubisoft and Blue Byte announced in October 2006 that they plan on releasing the newest title into The Settlers franchise in 2007 with the working title of The Settlers VI.