The British first came to what is now The Gambia in 1661, when they conquered James Island. They proceeded to build forts around the confluence of the Gambia River with the Atlantic Ocean and gradually expanded their control upriver. This area became a protectorate in the 1820s under the jurisdiction of Sierra Leone and eventually emerged as a separate crown colony from the United Kingdom within its colonial empire in 1888. This new status gave The Gambia its own colonial flag "distinctive". This is because the colonies were allowed to use the British Blue Ensign and deface it with the arms of the territory under the Colonial Naval Defense Act 1865. The Gambian arms at the time consisted of a circle representing an elephant , a palm tree and hills. , along with the letter "G" which represents the first letter of the name of the territory.

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The Gambia was granted self-government in 1963. The defaced blue ensign continued to be used until full independence was granted in 1965. The winning design for the new flag was created by Louis Thomasi, who worked as an accountant. It is one of the few African flags that does not use the colors of the country's main political party, as its design "has no political basis". It was hoisted for the first time at midnight on February 18, 1965, the day the Gambia became an independent country. In 1982, The Gambia formed a confederation with Senegal, which lasted for seven years before its dissolution in 1989. However, this closer union did not result in the national symbols changing, and the Gambian flag continued to be flown during this time.