Discovered in 1878 by Édouard Stephan using the 800 mm (31 in) reflector at Marseille Observatory,[4] it is one of the smallest planetary nebulae and by far the most extensively studied.

[5] In 1977 at Yerkes Observatory, a small Schmidt-Cassegrain telescope was used to derive an accurate optical position for the planetary nebula NGC 7027 to allow comparison between photographs and radio maps of the object.

[12] It has a very complex shape, consisting of an elliptical region of ionized gas[13] and an equatorial belt[14] within a massive neutral cloud.

This mass loss in NGC 7027 provided important evidence that stars a few times more massive than the Sun can avoid being destroyed in supernova explosions.

[20] The helium hydride ion, thought to be the earliest molecule to have been formed in the Universe (about 100,000 years after the Big Bang), was detected in 2019 for the first time in space in NGC 7027.

Although the details of NGC 7027's formation are unclear, it is hypothesized that interactions with the secondary star produced the complex structure of the planetary nebula, including the jets and resulting spikes.