It was influential throughout the 1990s, but suffered a major setback after its founder and leader, Jim Anderton, left the party in 2002, taking with him several of its members of parliament (MPs).

Led by Roger Douglas, the Minister of Finance, Labour had adopted radical policies of economic liberalisation, free trade, and privatisation of state assets – sharply in contrast both with the party's background and its campaign promises.

This was deeply unpopular both with a section of the public and with ordinary members, but Douglas and his allies, without effective constraint by Prime Minister David Lange, pressed on with the reforms.

NewLabour, the Democrats, and Mana Motuhake, all of which opposed the platform set out by Douglas, gradually began to work together to fight their common political opposition.

On 1 December 1991, NewLabour, the Greens, the Democrats, and Mana Motuhake formally agreed to establish the Alliance as an official party.

[7] Shortly after the official establishment of the Alliance, a small splinter group from the National Party applied to join.

The addition of the two Liberal MPs (Gilbert Myles and Hamish MacIntyre) together with Anderton gave the party more of a presence in parliament.

[11] There were also discussions regarding the Alliance's links with Winston Peters, a former National MP who founded the New Zealand First party.

Peters was also opposed to the economic reforms being undertaken, was hostile towards big business, and claimed to support ordinary New Zealanders, but was also highly conservative in his social policies.

The former stronghold of Robert Muldoon, a former National Party prime minister, Tamaki was not regarded as an easy run for the Alliance.

The Alliance candidate, Chris Leitch of the Democrats, finished a close second behind National's Clem Simich, pushing Labour into third place.

[14] Later that year, the Alliance made further gains in the 1992 local-body elections campaigning on a platform of halting the sale of public utilities.

However, the electoral system meant that the party only won two seats – one delivered by Jim Anderton, and the other by Sandra Lee in Auckland.

Eventually, New Zealand First leader Winston Peters opted to form a coalition with National, leaving both Labour and the Alliance in opposition.

This allowed a gradual reconciliation between Labour and the Alliance, a process assisted by the impression that lack of cooperation had cost both parties support.

Eventually, this led to an agreement between the two parties in 1998, with both sides agreeing to cooperate in forming a government should election results allow it.

The Alliance claims to have made a number of significant achievements while in government, citing (among other things) the creation of the Ministry of Economic Development, the lifting of the minimum wage, a change in funding systems for schools, and abolition of market rents for state housing.

Laila Harré became the leader of the remaining Alliance, supported by MPs Willie Jackson and Liz Gordon.

The Alliance, believing that it would struggle to reach 5% (the threshold for a party being awarded representation proportional to its support), needed to win an electorate seat to gain entry to parliament.

Gerard Hehir, the outgoing General Secretary, informed the Electoral Commission that the Alliance no longer had the five hundred financial members required for registration.

At the 2007 national conference, held in Dunedin, two co-leaders were elected, Victor Billot and Kay Murray, with Paul Piesse returning to his former role as Party President.

Speakers at the 2007 national conference included political commentator Chris Trotter and publisher Jack Yan.

The party continued to release an annual alternative budget, prepared by the Alliance spokesperson on tax, the academic and intelligence researcher Jim Flynn.

In 2008 the Alliance adopted a new logo designed by Jack Yan & Associates[25] to signal the changes it has undergone and its intention for renewal and rebuilding.

In 2020, the former Alliance MP Phillida Bunkle wrote an essay for Newsroom about her time in the party, in which she made allegations of a culture of bullying and misuse of funds, and of disruptive power-play by an internal grouping she called "the Faction.