The charter school movement has roots in a number of other reform ideas, from alternative schools, to site-based management, magnet schools, public school choice, privatization, and community-parental empowerment. The term "charter" may have originated in the 1970s when New England educator Ray Budde suggested that small groups of teachers be given contracts or "charters" by their local school boards to explore new approaches. Albert Shanker, former president of the AFT, then publicized the idea, suggesting that local boards could charter an entire school with union and teacher approval. In the late 1980s Philadelphia started a number of schools-within-schools and called them "charters." Some of them were schools of choice. The idea was further refined in Minnesota where charter schools were developed according to three basic values: opportunity, choice, and responsibility for results.

In 1991 Minnesota passed the first charter school law, with California following suit in 1992. By 1995, 19 states had signed laws allowing for the creation of charter schools, and by 2003 that number increased to 40 states, Puerto Rico, and the District of Columbia. Charter schools are one of the fastest growing innovations in education policy, enjoying broad bipartisan support from governors, state legislators, and past and present secretaries of education. In his 1997 State of the Union Address, former President Clinton called for the creation of 3,000 charter schools by the year 2002. In 2002, President Bush called for $200 million to support charter schools. His proposed budget called for another $100 million for a new Credit Enhancement for Charter Schools Facilities Program. Since 1994, the U.S. Department of Education has provided grants to support states' charter school efforts, starting with $6 million in fiscal year 1995.