Richard and David Darling began programming while attending school in Vancouver, Canada, before returning to England and founding Galactic Software, which produced budget games for publisher Mastertronic. By the time they were in their mid-teens the brothers had earned £200,000 from their work. After briefly holding a stake in Mastertronic, they founded Codemasters with help from their father in October 1986.
The studio's first release was BMX Simulator. Codemasters built its early business around budget-priced titles developed partly through freelance contributors, including the Oliver Twins, who produced Super Robin Hood and Ghost Hunters for the studio. The company found broader commercial success with the Micro Machines series and Pete Sampras Tennis on the Sega Mega Drive, and developed the Game Genie cheat cartridge for the NES, which was released in the United States by Galoob.
Codemasters became particularly associated with racing games through the Colin McRae Rally series, the TOCA touring car series, and the DiRT series of off-road titles. In May 2008 the company won the rights to the Formula One video game licence after Sony's arrangement expired, and the first title produced under that deal — F1 2009 — appeared on Wii and PlayStation Portable in November 2009. The F1 series continued annually and became Codemasters' flagship franchise.
In mid-2012 Codemasters consolidated its racing output under the Codemasters Racing label. DiRT: Showdown and F1 2012 were the first titles to carry the label, though it was discontinued in 2016 with subsequent games reverting to the standard Codemasters branding.
The company acquired Slightly Mad Studios, developers of the Project CARS series, in November 2019 for approximately US$30 million. In June 2020 Codemasters secured an exclusive five-year licence to produce games based on the World Rally Championship, with the first title planned for 2024.
Codemasters' proprietary Ego engine, a modified version of the Neon engine developed alongside Sony Computer Entertainment's PhyreEngine, became the technology platform for its racing titles from Colin McRae: DiRT onwards, enabling detailed damage modelling and large-scale environment rendering.
In November 2020, Take-Two Interactive approached Codemasters with a buyout offer valued at approximately £739 million. The Codemasters board agreed in principle, but Electronic Arts made a competing offer in December 2020 at £6.04 per share — roughly US$1.2 billion, about 14 percent above Take-Two's bid. Take-Two withdrew in January 2021, and EA completed the acquisition on 18 February 2021. Codemasters was subsequently managed as a standalone entity within EA, similar in structure to Respawn Entertainment.
In May 2022 EA merged Codemasters Cheshire into Criterion Games to support development on the Need for Speed series. In December 2023 an unspecified number of Codemasters employees were laid off. In May 2025 Codemasters halted development on its WRC titles, with further redundancies and staff movements to other EA Sports properties.
In 2005 Codemasters was named the best independent video game developer by Develop magazine. The Darling brothers were appointed Commanders of the Order of the British Empire (CBE) in the 2008 Queen's Birthday Honours for services to the video game industry.