Tea plants have grown wild in the Assam region of India since antiquity, but historically South Asians viewed tea as an herbal medicine rather than as a recreational beverage. Some of the chai masala spice mixtures, or Karha, that are still in current use are derived from Ayurvedic medical texts.

In the 1830s, the British East India Company became concerned about the Chinese monopoly on tea, which constituted most of its trade and supported the enormous consumption of tea in Great Britain: approximately one pound (by weight) per person per year. British colonists had recently noticed the existence of the Assamese tea plants, and began to cultivate tea plantations locally. In 1870, over 90% of the tea consumed in Great Britain was still of Chinese origin, but by 1900 this had dropped to 10%, largely replaced by tea grown in British India (50%) and British Ceylon (33%).

However, consumption of black tea within India remained low until an aggressive promotional campaign by the (British-owned) Indian Tea Association in the early 20th century, which encouraged factories, mines, and textile mills to provide tea breaks for their workers. It also supported many independent chai wallahs throughout the growing railway system.

The official promotion of tea was as served in the English mode, with small added amounts of milk and sugar. The Indian Tea Association initially disapproved of independent vendors' tendency to add spices and greatly increase the proportions of milk and sugar, thus reducing their usage (and thus purchase) of tea leaves per liquid volume. However, masala chai in its present form has now firmly established itself as a popular beverage, not just outlasting the British Raj but spreading beyond South Asia to the rest of the world.