The squadron was formed from RFC / RAF Nos 437 and 438 Flights at Mudros, Greece on 27 September 1918 to carry out anti-submarine patrols in that area, flying Short 184s and 320s along with Felixtowe F.3s.

Originally it was equipped with the Fairey Battle light bomber but soon after in January 1940 it received the Supermarine Spitfire and became a fighter squadron.

To rest the squadron it was moved north to RAF Wittering to carry out patrols over France.

263 Squadron RAF Typhoons with Spitfire escort was mistakenly ordered to attack the Royal Navy 1st Minesweeping Flotilla off Cap d'Antifer, Le Havre, with the result that HMS Britomart and Hussar were sunk and Salamander was irreparably damaged, killing 117 sailors and wounding 153 more.

The squadron moved on 16 October 1955 to RAF Fassberg, West Germany for a year before going back again to Wunstorf, where it was disbanded on 16 November 1957.

The last time the squadron reformed was on 1 December 1959 at Rattlesden to operate the Bristol Bloodhound anti-aircraft missile until it was finally disbanded on 30 June 1964.