Mastery of Iai-Jutsu was essential for any soldier going to battle. When faced by an opponent, it was necessary to be able to draw one's sword as quickly as possible and not fumble around before attaining a position of self-defense. Therefore, the movements of Iai-jutsu were both offensive and defensive at the same time. To protect the sword after battle it was important to return it to its scabbard. Blood was wiped off so that the sword would not stick to the scabbard, slowing the warrior down the next time he needed to draw his sword.

It is believed that the first school to specialize in drawing the sword for use in battle was the Muso Jikiden-ryu School. It was established in 1560 by Hayashizake Jinnosuke Shigenobu. Other Kendo Ryu (schools) also began training students in different techniques of drawing the sword; some of their techniques and styles have survived to this generation. Hayashizake Jinnosuke Shigenobu developed Iai-Jutsu into modern Iaido.

Under the Tokugawa Shogunate, Japan was relatively tranquil and there was little need to practice Iai-Jutsu for combat purposes. It was, however, recognized that the skill and dexterity necessary to practice Iaido were ideal as a Do form of Martial Arts. In the eighteenth century, Hasegawa Chikara-no-Suke Hidenobu, more commonly known as Eishin, perfected the techniques developed by Hayashizake. In his honor, the Muso Jikiden-Eishin-Ryu. Eishin deserves the greatest credit for transforming Iai from a Jutsu (military technique) to a Do (art).

Although there are only limited movements in Iaido, there are several schools, each with their own unique styles, training methods, and emphases, For instance, some schools use wooden swords in practice while some schools use real swords. Similarly, some schools practice slicing straw dummies, but the Muso Jikiden-Eishin-Ryu practices only against an imaginary opponent. There is now a movement to standardize Iaido, led by the Japanese Federation of Iaido.