SubSpace evolved from a game originally called Sniper (1995), a project to test the effects and severity of lag in a massively multiplayer environment over dialup connections. After its creators realized its viability as an actual game, public beta testing began in February, 1996, and it became fully public later that year. The game was released commercially in December 1997 with a list price of US$27.99 for unlimited play, requiring no monthly or hourly fees. The game was originally developed by Burst, led by Jeff Petersen (aka "JeffP"), Rod Humble (aka "rodvik") and Juan Sanchez, for the US branch of the now-defunct Virgin Interactive.

When the game was officially released, it was not a commercial success due to a lack of marketing and the relative newness of internet gaming. Two years of playing for free became problematic as many players refused to pay for a game that they had beta tested for two years, and instead opted to pirate the software.

SubSpace server software being distributed with the commercial release of the game allowed users to host their own servers on their own computers, enabling them to preserve the game.

Once VIE went under in 1998, many of its remaining US assets were purchased by Electronic Arts, but the SubSpace license was not. This caused all of the commercially hosted servers, including the official VIE servers, to eventually go offline permanently, and independent user-run servers became the only choice for hosting zones, including original zones previously hosted by VIE.

Alex Petroukine (aka Sage386), a programmer from Russia released a cheat utility called Twister and also released a client called SubSpace v1.35 removing the security CD check, allowing for more widespread piracy.

Within a short time, a number of cheats in addition to Twister appeared, and commercial game hacking programs took their toll on the game as well. In response, a server-side banning utility called BanG was developed; arresting the cheating epidemic.

The new BanG utility extended the banning capabilities of the server.

The Continuum client software is now the only client permitted to connect to the shared login server on the user run "SubSpace Central" (SSC) network of hosted zones.