It was founded in 2002 by Darren Morgenstern, with the slogan: "Life is short. Have an affair." The name comes from two popular female names, "Ashley" and "Madison."

Also in 2009, NBC refused an ad submitted by Ashley Madison for the network's broadcast of Super Bowl XLIII.

In 2012, the company was sued by former employee Doriana Silva, who stated that in preparation for the launch of the company's Portuguese-language website, she was assigned to create over a thousand bogus member profiles within a three-week period in order to attract paying customers, and that this caused her to develop repetitive stress injury. The lawsuit claimed that as a result Silva "developed severe pain in her wrists and forearms," and has been unable to work since 2011. The company countersued, alleging fraud. The company claimed that Silva had been photographed jet-skiing, an activity that was unlikely for someone who had suffered serious injury to the hands and forearms. Ashley Madison later alleged further that Silva had kept confidential documents and sought to retrieve them.

The first release, validated by experts, occurred on August 18. Another release was made on August 20, but a 13 GB file – which allegedly contained the emails of Avid Life Media CEO Noel Biderman – was corrupted. This was corrected on August 21, when the Impact Team dumped Biderman's emails in a separate 19 GB file.

Unlike Match.com or eHarmony, Ashley Madison's Business model is based on credits rather than monthly subscriptions. For a conversation between two members, one of the members—almost always the man—must pay five credits to initiate the conversation. Any follow-up messages between the two members are free after the communication has been initiated. Ashley Madison also has a real-time chat feature where credits buy a certain time allotment.

On July 15, 2015, the site was hacked by a group known as "The Impact Team". Claiming that its security had always been weak, the hackers claimed to have stolen personal information about the site's user base, and threatened to release names, home addresses, search histories and credit card numbers if the site was not immediately shut down. The demand was driven by the site's policy of not deleting users' personal information following their invoiced requests.

In July 2016, CEO Rob Segal and newly appointed President James Millership told Reuters that the company had phased out bots by late 2015. Segal shared an independent report by EY (Ernst & Young) which verified the phase-out.

CEO Rob Segal said in an interview with the Wall Street Journal that the company is making ongoing Investments to enhance privacy and security safeguards, including a partnership with Deloitte’s cyber security team. Segal also announced new discreet payment options, including Skrill, Neteller and Paysafe card.