The opium poppy was cultivated in lower Mesopotamia as long ago as 3400 BC. The chemical analysis of opium in the 19th century revealed that most of its activity could be ascribed to two ingredients, codeine and morphine.

Heroin was first synthesized in 1874 by C.R. Alder Wright, an English chemist working at St. Mary's Hospital Medical School in London, England. He had been experimenting with combining morphine with various acids. He boiled anhydrous morphine alkaloid with acetic anhydride over a stove for several hours and produced a more potent, acetylated form of morphine, now called diacetylmorphine. The compound was sent to F.M. Pierce of Owens College in Manchester for analysis, who reported the following to Wright:

Doses ... were subcutaneously injected into young dogs and rabbits ... with the following general results ... great prostration, fear, and sleepiness speedily following the administration, the eyes being sensitive, and pupils constrict, considerable salivation being produced in dogs, and slight tendency to vomiting in some cases, but no actual emesis. Respiration was at first quickened, but subsequently reduced, and the heart's action was diminished, and rendered irregular. Marked want of coordinating power over the muscular movements, and loss of power in the pelvis and hind limbs, together with a diminution of temperature in the rectum of about 4° (rectal failure).
Wright's invention, however, did not lead to any further developments, and heroin only became popular after it was independently re-synthesized 23 years later by another chemist, Felix Hoffmann. Hoffmann, working at the Bayer pharmaceutical company in Elberfeld, Germany, was instructed by his supervisor Heinrich Dreser to acetylate morphine with the objective of producing codeine, a constituent of the opium poppy, similar to morphine pharmacologically but less potent and less addictive. But instead of producing codeine, the experiment produced an acetylated form of morphine that was actually 1.5-2 times more potent than morphine itself. Bayer would name the substance "heroin", probably from the word heroisch, German for heroic, because in field studies people using the medicine felt "heroic".

From 1898 through to 1910 heroin was marketed as a non-addictive morphine substitute and cough suppressant. Bayer marketed heroin as a cure for morphine addiction before it was discovered that heroin is rapidly metabolized into morphine, and as such, "heroin" was basically only a quicker acting form of morphine. The company was somewhat embarrassed by this new finding and it became a historical blunder for Bayer.

As with aspirin, Bayer lost some of its trademark rights to heroin following the German defeat in World War I.

In the United States the Harrison Narcotics Tax Act was passed in 1914 to control the sale and distribution of heroin and other opiates. The law did allow heroin to be prescribed and sold for medical purposes. In particular, recreational users could often still be legally supplied with heroin and use it. In 1924, the United States Congress passed additional legislation banning the sale, importation or manufacture of heroin in the United States. It is now a Schedule I substance, and is thus illegal in the United States.