The C-101 was developed in response to a Spanish Air Force requirement, which needed a replacement for the outdated Hispano Saeta.

In addition to its own design team, technical assistance was provided by Germany's Messerschmitt-Bölkow-Blohm (MBB) and the United States' Northrop.

On 17 March 1980, the first examples were introduced to operational service with the Spanish Air Force, which would be the principal customer for the C-101.

[6] The C-101 was designed in response to a Spanish Air Force requirement issued in 1975, calling for a new jet trainer to replace its aging fleet of Hispano HA-200s and Ha.220s.

During 1972, Hispano had been absorbed by Spanish aircraft company Construcciones Aeronáuticas SA (CASA), who took an interest in the trainer requirement.

Both the German manufacturing conglomerate Messerschmitt-Bölkow-Blohm (MBB) and American defense company Northrop opted to participate in the venture; specifically, engineers at MBB worked on the design of the rear fuselage and tail section while Northrop's team were responsible for the design of the aircraft's wings and engine inlets.

[7] The fuselage provided considerable internal space, permitting the installation of various additional aviation or supplemental systems as to suit future requirements or other secondary roles.

[7] Foreseen secondary roles included ground attack, armed escort, photographic reconnaissance, and as an electronic countermeasures (ECM) platform.

[8][10] The only unconventional feature of the aircraft was the presence of a large internal weapons bay located beneath the rear cockpit; this allowed for a wider variety of armament to be carried than the underwing hard points could accommodate; alternatively, this bay enabled the carriage of other equipment, including reconnaissance payloads.

It was provisioned with a considerable endurance range as a result of the initial requirement having called for a self-deployment capability to the Canary Islands from the Spanish mainland.

[16] Between 1990 and 1992, all Spanish Air Force C-101s received an extensive upgrade package which mainly focused on the aircraft's navigation and armament systems.