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The company was named Tomy as an abridgement of Tomiyama, which was the founder's surname. Starting as a manufacturer, Tomy had the largest product development team in the toy industry and plaudits for its technology. Nonetheless, by its third generation, president Mikitaro Tomiyama decided to streamline the company to be more competitive with wholesaler Bandai. Bandai developed its products more quickly, which was more appealing to television properties that required a fast turnaround. Despite internal and external opposition, Tomiyama was determined to aggressively pursue TV licenses such as Akakage, Giant Robo and Osomatsu-kun.

Tomiyama was shocked when his son told him that Tomy's toys were bad and that he wanted to work for Bandai when he was an adult. In response, Tomiyama created the moderately successful Zettai Muteki Raijin-Oh (then Genki Bakuhatsu Ganbaruger), but the product development team followed these with Nekketsu Saikyō Go-Saurer, which was a catastrophic failure. However,Tomy then established a relationship with Shogakukan and created the successful Wedding Peach and Let's & Go.

Tomy learned about the growing popularity of Pokémon through the monthly CoroCoro Comic and obtained the commercial rights. Bandai at the time was busy with its big hit, Tamagotchi, and was not interested in Pokémon. Tomy acquired the rights to commercialize a wide range of merchandise, mainly toys, and released the "Monster Collection" of figures next year. The Pokémon anime became a huge hit, and sales of related products doubled. The success of the Pokémon license in 1996 significantly boosted Tomy's domestic market share. This period marked a peak in the company's growth, solidifying its position as one of Japan's top two traditional toy manufacturers alongside Bandai.

In 2001, competitor Takara's hit franchise Beyblade and Pokémon's slump saw Takara regaining second place and Tomy falling back to third place. However, Beyblade subsequently faltered, which adversely affected Takara's fortunes. Tomy merged with the suffering company, and they became Takara Tomy).

The company decided to use the name "Tomy" in international subsidiaries, and "Takara Tomy" in Japan and Asia, because Tomy had built considerable international brand recognition while Takara's products (Microman, Transformers, Battle Beasts, Beyblade, B-Daman etc.) had been sold and branded by other toy companies such as Hasbro. Additionally, the financial cost of rebranding was prohibitive.^[5]

In Western media, the Takara Tomy merger was typically characterised as a 'takeover' of Takara by Tomy (likely because several years of losses had put Takara in a financially weakened state at the time of the merger (although Takara did have significantly higher sales than Tomy)). However, the companies' management teams had previously discussed merging (including at times when Takara appeared stronger). Under Japanese corporate law, the move was a merger of both companies on an equal basis.

Post-merger media speculation about the control of brands from the Takara Tomy merger arose from the new use of a "TOMY" copyright on all packaging (including former Takara brands shipped by Hasbro) (but this was merely a consequence of the decision to use only the Tomy name in international subsidiaries). In Japan, Takara Tomy continues to use both Tomy and Takara as distinct brand names on toy ranges which originated in each separate company, and most new toy ranges or stand-alone products now carry the new Takara Tomy brand.

Takara purchased a majority stake in Tatsunoko Production in June 2005. The studio then became a full subsidiary of Takara Tomy following the March 2006 merger until Nippon Television Holdings bought out the majority of Tatsunoko's stake in 2014. Tomy UK was founded in 1982 for the sale and distribution of Tomy products in Europe, and it has successfully brought toys such as Zoids, and games like Pop-up Pirate, to the West. Tomy UK's slogan has traditionally been "Trust Tomy". In 2006, Tomy UK launched a website on which consumers can buy online from Tomy's catalogue.^[6] In early 2011, Takara-Tomy acquired RC2 Corporation and the RC2 sub-brand Learning Curve, which included The First Years, Lamaze, and Compass.

In November 2026, Takara Tomy has announced a new logo redesign and brand refresh. Their current logo will be retired on April 1st 2027, after being used for 21 years. The new logo features a symbol based on the katakana word “Asobi” (Japanese: "play"), which also references Takara’s old slogan "play is culture".^[7][8]