The squadron was first formed in December 1943 as part of the Royal Australian Air Force (RAAF), and saw combat in and around New Guinea during 1944 and 1945 equipped with P-40 Kittyhawk fighters.

120 Squadron was transferred to the Netherlands East Indies Air Force in 1946 and participated in the Indonesian National Revolution.

120 (Netherlands East Indies) Squadron was formed at RAAF Station Fairbairn in Canberra on 10 December 1943.

However, it was later decided to deploy the unit to Merauke on the south coast of New Guinea, which formed part of the pre-war Netherlands East Indies (NEI).

The squadron acquired its full complement of P-40 Kittyhawk fighters by 22 January 1944; at this time it was manned by 28 Dutch pilots and 213 RAAF personnel.

120 (NEI) Squadron made an emergency deployment to 'Potshot' airfield in Western Australia in response to a feared Japanese attack on the Perth area.

120 (NEI) Squadron remained at the town and proposed moves to Horn Island and Cape York did not eventuate.

[5] While the wing was issued with orders to move to New Britain on 31 December, this was delayed as the planned airfield at Jacquinot Bay could not be made ready until March.

The squadron departed Merauke on 14 April 1945 bound for Darwin, Northern Territory where it would join up with the rest of No.

120 (NEI) Squadron's seaborne echelon arrived at Biak on 21 May 1945, but its aircraft and personnel did not complete the move until 10 June.

120 (NEI) Squadron fighters were shot down during an attack on 30 July, and a further two aircraft were lost in early August.

11 Group RAAF, which had been formed in mid-July to take over responsibility for garrison duties in Borneo and the eastern islands of the NEI.

[1] Following the end of the war, the squadron continued to fly surveillance and escort flights over northern New Guinea during September and October 1945.

120 Squadron was assigned to the Netherlands East Indies Air Force (NEIAF) on 20 June, thereby ending its relationship with the RAAF.