Prior to the division between arcade-style racing and sim racing, the earliest attempts at providing driving simulation experiences were arcade racing video games, dating back to Pole Position, a 1982 arcade game developed by Namco, which the game's publisher Atari publicized for its "unbelievable driving realism" in providing a Formula 1 experience behind a racing wheel at the time. Pole Position II was released in 1983 and featured several improvements like giving the player the choice of different race courses. TX-1, developed by Tatsumi in 1983, was licensed to Namco, who in turn licensed it to Atari in America, thus the game is considered a successor to Pole Position II.
Sim racing is generally acknowledged to have really taken off in 1989 with the introduction of Papyrus Design Group's Indianapolis 500: The Simulation, designed by David Kaemmer and Omar Khudari on 16-bit computer hardware. The game is often generally regarded as the personal computer's first true auto racing simulation. Papyrus followed up Indy 500 with IndyCar Racing in 1993 and F1GP was surpassed in all areas.
Graphics accelerator cards brought a new level of realism to the graphics and physics of sim racing games. F1 Racing Simulation by Ubisoft, was among the first to utilize the new technology in 1997.
Sim racing games since the 2000s began exploring more complex vehicle physics implementations. One of the earliest examples was Live for Speed, created by ex-Lionhead Studios developers Eric Bailey, Scawen Roberts, and Victor van Vlaardingen in 2003, which implemented a complex tire model by creating a brush deflection model. iRacing was released in 2008, a multiplayer-oriented simulator run on a subscription model.
In recent years, as international interest has grown, so has the online community and underground racing circuit. These communities act as a focal point for users around the world to engage with one another, coordinate racing schedules, exchange modded cars, tracks, discuss hardware configurations and facilitate other communications.
The growing fidelity of sim racing has led to its adoption in professional motorsport as talent pipeline for drivers. Some players have established careers through sim racing such as William Byron, Rajah Caruth, Tim Heinemann, Jann Mardenborough, and Lucas Ordóñez.