An independent company, it was founded in 2002 under the name Puraguru by George Kamitani, a game developer who had previously worked at Capcom and Atlus, and directed Princess Crown (1997) for the Sega Saturn.

Beginning as a small studio developing Fantasy Earth: The Ring of Dominion for Enix, in 2004 the company moved to Osaka, Kansai, and changed its name.

The company is noted for its use of two-dimensional artwork, with character models having jointed hand-scripted movements similar to Flash animation.

[2] The game was a commercial failure, resulting in Atlus Kansai being closed, Kamitani's team being blacklisted in the industry, and an intended Dreamcast sequel being cancelled.

[7] Kamitani wanted to create a sequel or successor to Princess Crown, and his team began development on Odin Sphere for PlayStation 2 (PS2) with funding and publishing by Atlus.

[2] Kamitani had been approached during production of Odin Sphere by Nippon Ichi Software president Sohei Shinkawa, who was a fan of Princess Crown.

As the team were lovers of StarCraft and were given complete creative freedom by Shinkawa, they created a fantasy-themed real-time strategy title for PS2 called GrimGrimoire.

[15] The production of GrimGrimoire entirely drained Vanillaware's funds, and to tide over the period to release Kamitani took out a personal loan of 20 million yen.

[2] Odin Sphere was a critical and commercial success, with its sales allowing Kamitani to pay off his loan, distribute staff bonuses, and help finance future projects.

[21][22] Born from a wish for Vanillaware and Marvelous Entertainment to work on a PSP title, Grand Knights History changed from previous action-based gameplay to a turn-based structure incorporating multiplayer while preserving the company's signature art style.

[27] The team put a large amount of effort into the game, indirectly leading to the localization of Grand Knights Kingdom being cancelled.

[20] Muramasa Rebirth for the Vita was an expanded port of the original with gameplay tweaks and additional downloadable content (DLC) released under the banner Genroku Legends.

[35] Kamitani was tired of fantasy worlds after Dragon's Crown and conceived 13 Sentinels: Aegis Rim as a science fiction-themed video game set in the 1980s, combining mecha with a shōjo manga aesthetic.

Originally a small domestic project with a toy line tie-in, Kamitani grew frustrated by the publisher's demands and showed it to Atlus.

The team faced numerous problems born from its ambitious thirteen-character narrative, real-time strategy gameplay building off concepts from GrimGrimoire, and more layered artwork and area variety.

[41] The game met with critical praise,[42] a port to the Nintendo Switch was released in 2022,[43] and by 2023 it had sold one million copies worldwide.

[6] The only outsourcing Vanillaware engages in is its sound design and music, which had been handled since its origins by Basiscape, a company founded by Hitoshi Sakimoto.

[2][15][54] An important element to Kamitani as cited by Ohnishi is "company branding", with sales based on the reputation and fan demand for its kind of games.

[2] The design of Kamitani's games, along with the focus on side-scrolling action, was directly inspired by his work at Capcom, particularly titles such as Dungeons & Dragons: Tower of Doom.

[55] The company uses proprietary programming toolsets inspired by Adobe Flash, as well as a graphic development process known as tebineri or "hand-shaping", which allows the artists to create characters and environments that look 3D but are rendered entirely from two-dimensional pixels.

[56][57] Odin Sphere also salvaged Kamitani's career in the games industry after the prolonged impact of Princess Crown's failure, allowing him to pursue more projects with Vanillaware.