The IESO was established in April 1999 as the Independent Electricity Market Operator (IMO) under the government of Ontario during the premiership of Mike Harris in preparation for deregulation of the province's electrical supply and transmission system.

As part of government plans to privatize the assets of Ontario Hydro, the utility was split into five separate Crown corporations with the IMO responsible for directing the flow of electricity across the high-voltage, province-wide network owned by Hydro One and other transmission companies.

The IMO was renamed to the IESO in January 2005 as a result of the passage of Bill 100, which redefined the direction of deregulation and also led to the creation of the Ontario Power Authority.

As a Crown corporation, IESO is owned by the government of Ontario but operates at arms-length.

After the Premier of Ontario Dalton McGuinty resigned in the fall of 2012, the merger was postponed.