The XM8 design was originally part of the Objective Individual Combat Weapon program (OICW), which was developing a "smart" grenade launcher system with an underslung carbine rifle.

While the XM8 was being considered by the United States Army as a potential standard infantry rifle, to replace the M4 carbine, this project was put on hold in April 2005, and was formally canceled on October 31 of that year.

The U.S. Army's purpose in contracting for this prototype weapon was to provide replacement options for the M16 rifle after the XM29 program ran into problems.

Among the complaints during testing was that the battery life was too low for the weapon's powered sight system and some ergonomics issues.

Two other key issues were reducing the weapon's weight and increasing the heat resistance of the handguard, which would start to melt after firing too many rounds.

At that time, the rifle still had developmental goals that were incomplete, primarily associated with the weapon's weight; the battery life had been extended, and a more heat-resistant plastic handguard added.

The weight of the carbine prototype had since grown to 3.4 kg (7.5 lb) according to a brochure released by HK and General Dynamics in January 2005.

The main argument was that the weapon that was being adopted was a substantially different system than for the original competition that ATK and H&K had actually won (see XM29).

The exact reason why this happened is a matter of debate; some combination of the aforementioned technical issues, funding restrictions, and outside pressure being involved.

No XM8 prototypes have been shown that actually match the capabilities of the M249 (e.g. fast barrel replacement, high sustained rate of fire, belt feed).

The OICW Increment One requirement for the SAW includes fast barrel replacement and high sustained rate of fire, but leaves the ammunition feed choice up to the manufacturer.

The launcher is heavier than the M203, but does offer some advantages, such as no need for special mounting hardware and loading from the side instead of the bottom, which enables use of longer-than-standard grenades.

In an article in Jane's Defence Weekly, April 26, 2006 (Vol 43, page 30) it is stated that "The US Army has again delayed the procurement of its future infantry weapons, this time for more than five years, and is working to field two interim guns in the meantime".

Preliminary tests in desert and arctic conditions have shown the XM8 to be a rugged weapon, though some complaints arose concerning an unspecified mechanical issue and melting handguards due to overheating when firing full-auto.

In the new OICW Increment One competition, the army has left the choice of attachment technology up to the manufacturer, with requirements built into the RFP as to the ability of sights to maintain their zero.

The number and type of variants in the family varied over its lifetime, this overview with three main versions is based from a press release in the early 2000s.

By 2010, the Royal Malaysian Navy special unit PASKAL began using the XM8 along with other Heckler & Koch assault rifles including the HK416 and G36.