The impetus for the development of the PPSh came from the Winter War (November 1939 to March 1940) between the Soviet Union and Finland, when the Finnish Army employed the Suomi KP/-31 submachine gun as a highly effective tool for close-quarter fighting in forests and built-up urban areas.

The Red Army's older PPD-34 had been in mass production since 1934, but it was expensive to manufacture, both in terms of material and labor, as it used numerous milled metal parts (particularly for its receiver).

In September 1940 Shpagin developed a prototype PPSh which also featured a simple gas-compensator designed to prevent the muzzle from rising during bursts; this improved shot grouping by about 70% relative to the PPD.

[17] The new weapon was produced in a network of factories in Moscow, with high-level local Party members made directly responsible for meeting production-targets.

The Soviet Union also experimented with the PPSh-41 in a close air-support antipersonnel role, mounting 88 of the submachine guns in forward fuselage racks on the Tu-2Sh variant of the Tupolev Tu-2 bomber.

[25] Though relatively inaccurate, the Chinese PPSh has a high rate of fire and was well-suited to the close-range firefights that typically occurred in Korea, especially at night.

[26] United Nations forces in defensive outposts or on patrol often had trouble returning a sufficient volume of fire when attacked by companies of infantry armed with the PPSh.

Some U.S. infantry officers ranked the PPSh as the best combat-weapon of the war: while lacking the accuracy of the U.S. M1 Garand and M1 carbine, it provided more firepower at short distances.

[26] Infantry captain (later general) Hal Moore, stated: "on full automatic it sprayed a lot of bullets and most of the killing in Korea was done at very close ranges and it was done quickly – a matter of who responded faster.

Although the PPSh is equipped with a sliding bolt safety, the weapon's open-bolt design still presents a risk of accidental discharge if the gun is dropped on a hard surface.