It was founded in 1988 under the name Bruce Artwick Organization Limited (BAO Ltd.) at Champaign, Illinois, by Bruce Artwick, creator of Microsoft Flight Simulator, Microsoft Space Simulator and also co-founder of Sublogic.

[1] Following the purchase of BAO Ltd. in December 1995, Microsoft renamed the studio to Microsoft Simulation Group, moving employees from Champaign, Illinois, to the company's headquarters in Redmond, Washington, where it became part of its Games Group division, which at the time was also co-owner of DreamWorks Interactive.

They worked with Stormfront Studios to develop Blood Wake as a launch title for the Xbox in 2001.

As part of a move that cut 5,000 jobs at Microsoft, Aces Game Studio was closed on January 22, 2009.

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