The agricultural village of Ayer Itam grew throughout the 19th century, populated by farmers who owned the fruit and vegetable farms at the surrounding hills.

Supposedly opened in the 1920s by a monk named Fa Kong, the zoo was shut down for good prior to World War II due to the excessive maintenance costs.

During the war, when the Imperial Japanese Army implemented the Sook Ching purges, Ayer Itam became one of the sites where Chinese civilians were massacred.

The urbanisation of Ayer Itam since the 1950s has brought about a concurrent increase in living standards and transformed the landscape with more high rises, making the suburb one of the more densely populated areas in George Town.

The suburb covers an area of 1.8 km2 (0.69 sq mi) and includes neighbourhoods developed later in the post-independence era such as Rifle Range.