ILGA-Europe was founded in 1996, when its parent organisation, the International Lesbian and Gay Association (ILGA), established separate regions. It took over responsibility for supporting the development of the LGBT movement in Europe and for relationships with the European Union, Council of Europe and the Organisation for Security and Co-operation in Europe.

Initially ILGA-Europe worked entirely on the basis of volunteer resources.  However in 2001, its potential contribution to the European Union's anti-discrimination policies (established under Article 13 of the Treaty of Amsterdam) was recognised through the provision of core funding. This enabled ILGA-Europe to set up an office in Brussels, to recruit permanent staff, and to conduct an extensive programme of work in relation to sexual orientation discrimination within the EU member states and the accession countries. Further financial support from the Sigrid Rausing Trust allowed ILGA-Europe to extend its work in areas not covered by EU funding, particularly East Europe, and on transgender issues.