The team emerged after the Litespeed F3 outfit approached Tony Fernandes, founder and CEO of the Tune Group and the AirAsia airline, who already had connections to Formula One as a Williams sponsor. The project was operated by 1Malaysia Racing Team Sdn. Bhd., a privately funded company jointly owned by Tune Group and Naza Group. Proton, the Malaysian carmaker that owns Lotus Cars, granted permission for the Lotus brand to be used. The FIA selected the entry as one of three new teams to join the 2010 grid following BMW Sauber's departure.
Technical director Mike Gascoyne led the technical programme from the team's base at the RTN (Racing Technology Norfolk Ltd.) facility in Hingham, Norfolk. Keith Saunt, who had held senior roles at Red Bull Racing, served as Chief Operating Officer. The team worked with Fondtech on aerodynamics, used Cosworth engines and Xtrac gearboxes, and hired former Toyota driver Jarno Trulli and McLaren's Heikki Kovalainen as race drivers. Malaysian driver Fairuz Fauzy was confirmed as test and reserve driver. The 2010 car, the T127, had its private shakedown at Silverstone on 9 February 2010 before being officially launched in London three days later.
Lotus Racing debuted at the 2010 Bahrain Grand Prix, qualifying 21st and 22nd. When both HRT and Virgin cars retired from that opening race, Kovalainen crossed the finish line in 15th, becoming the only driver of the three new entrants to complete the race. Team principal Fernandes described it as "an amazing day."
The team consistently demonstrated stronger pace than HRT and Virgin Racing throughout the year. A notable incident occurred at the European Grand Prix in Valencia, where a braking misjudgement at a high-speed straight saw Mark Webber's Red Bull make contact with Kovalainen's right-rear wheel and become airborne, striking an advertising hoarding before crashing heavily. Webber was unhurt, though the crash — caused partly by the speed differential between the cars — highlighted the challenges facing the new teams. In Belgium, Kovalainen reached Q2 for the second time in the season. At Japan, he finished 12th and was the first of the new teams to cross the line, consolidating Lotus's tenth-place position in the Constructors' Championship.
During the British Grand Prix weekend, the team was renamed Team Lotus in advance of the 2011 season, following Tony Fernandes's acquisition of the historic Team Lotus Ventures Ltd. from David Hunt.
The 2010 season was conducted under a licence from Group Lotus allowing use of the Lotus brand. In September 2010, Group Lotus terminated that licence, citing what it described as flagrant and persistent breaches. Fernandes countered that the termination was wrongful and confirmed the team would use the Team Lotus name going forward after his purchase of the original Team Lotus trademark from Hunt. The dispute eventually reached the High Court of Justice in London, with hearings in early 2011. In May 2011, the court ruled that Fernandes's team could continue using "Team Lotus" and the Team Lotus roundel but could not use "Lotus" alone; Group Lotus retained the right to the standalone Lotus name and took it to the renamed Renault team. The team was also required to pay damages for its breach of the original licence.
Lotus Racing's 2010 campaign was widely regarded as the most competent debut among the three new entrants of that year. The team finished tenth in the Constructors' Championship, ahead of both Virgin and HRT, demonstrating that a new constructor with limited resources could still arrive with a functioning, competitive car relative to the other novices. The T127's relative reliability — Kovalainen in particular finished more races than drivers from HRT or Virgin — set the baseline for the team's evolution into Team Lotus in 2011 and subsequently Caterham F1 Team from 2012.