The Lonely Island first formed at Willard Junior High School in Berkeley, California in the early 1990s. Schaffer and Taccone first met in seventh grade Spanish class, and the group later expanded to include Samberg, a year behind the two. The trio belonged to a large group of friends interested in skateboarding. Each had plans to pursue the arts following their graduation from Berkeley High School, but they split apart, attending different colleges. Taccone attended the University of California, Los Angeles to study theatre, while Schaffer and Samberg both attended the University of California, Santa Cruz as film students. Samberg later transferred to New York University's Tisch School of the Arts in his sophomore year, with the three communicating over the phone during this period. Following college, the trio regrouped in Berkeley to decide their Future. Their two options — either stay in Berkeley and begin making short films or move to Los Angeles, "get real jobs," and eventually begin making films —ended in a compromise.

In September 2000, they moved to Los Angeles and created their website, which would host short films. They named themselves the Lonely Island, after the "modest, low-rent" L.A. apartment they shared. Their roommate was a musician, and their late nights together often led to the trio making comedic rap songs, which they began to upload online. Their videos were produced via borrowed equipment and edited on a single PowerMac, and were first uploaded to websites such as iFilm and Heavy.com, and their first "fake rap" song, "Ka-Blamo!", was uploaded in September 2001. They released their work under Creative Commons licenses, which allowed anyone to distribute their content (such as blogs and peer-to-peer networks), perhaps leading to wider audiences. In December 2001, they produced a pilot for a television series titled The Lonely Island; the first episode, "White Power!", involved the three becoming addicted to teeth whitening products. The video gained the trio agents, and was notable for a scene in which they mug an elderly woman. During the shoot, actor Kiefer Sutherland, not realizing it was a video, stopped and tried to intervene. Their agents requested they convert their shorts to VHS tape, as they did not have high-speed Internet at the time.

Unable to secure full-time positions, the trio took temporary jobs; one season, they worked at Fox Television over the holidays, tying ribbons around metal snowflakes the studio gifted to their employees. Eventually, Schaffer worked as an assistant at a movie poster company, while Taccone and Samberg became production assistants on Spin City. In 2003, they produced a second pilot for a Lonely Island series; the film premiered at the Comedy Central Stage in Los Angeles, the cable network’s proving ground for new talent. The network purchased the series, but further scripts did not move forward. They became involved with Super Midnight Movie Club, a club hosted by screenwriters Dan Harmon and Rob Schrab, which evolved into Channel 101, non-profit monthly short film festival. Their first submission, Ignition TV Buzz Countdown, was voted back after its premiere, but ended after two episodes. Their second Channel 101 series, The 'Bu, is a parody of Fox's The O.C., and was enormously successful at the screenings, running for eight episodes. It was crucial in their early successes, demonstrating to television executives their popularity among tastemakers and a younger audience. Samberg's former Producer at Spin City passed along the trio's demo reel to the United Talent Agency, which would lead them to their first major television deal.

"Lazy Sunday" aired on December 17, 2005, when the comedy troupe were little known to even Saturday Night Live's most devout fans. By the following morning, it had spread online nationwide. Schaffer and Taccone also were contacted by friends who heard the track played on radio stations and in bars. "Lazy Sunday" inspired a line of T-shirts, released during the initial boom of popularity in the weeks after its release. One of the first viral YouTube videos, it increased the trio's recognizability, particularly Samberg's nearly overnight. Their success, according to New York, "forced NBC into the iPod age"; the short was initially available after its broadcast through the iTunes Music Store, made free for subscribers. Following his stardom on SNL, Samberg became a Celebrity, being covered in tabloid publications. Their profile in The New York Times led to a record deal and their own division at the program: SNL Digital Shorts, which the group controlled with complete autonomy. In March 2006, the trio produced their second viral hit, "Natalie's Rap". In the Sketch, Actress Natalie Portman acts as a gangsta rap star, juxtaposing her clean-cut, Harvard-educated image with profane and shocking lyrics. Portman was the host of the program that week, and came to the three having seen "Lazy Sunday".

The Lonely Island's next major viral success came in December 2006, when they collaborated with singer Justin Timberlake for the Digital Short "Dick in a Box", which stars Samberg and Timberlake as R&B-crooning balladeers who package their genitals as Christmas gifts. Taccone came up with the "dick in a box" premise after Michaels asked Samberg to write a Sketch showcasing Timberlake's voice. Timberlake recalled that the Musicians were "laughing hysterically" during its production, and that the "delirium of no sleep" contributed to the humor of the song. The online version of the short — which, like its predecessors, attracted millions of views on YouTube — was uncensored, creating controversy. "In the process Saturday Night Live appears to have become the first scripted comedy on a broadcast network to use the Web to make an end-run around the prying eyes of both its internal censors and those of the Federal Communications Commission, whose jurisdiction over “Saturday Night Live” effectively ends at the Web frontier," said Jaques Steinberg of The New York Times. The song won a Creative Arts Emmy for Outstanding Original Music and Lyrics.

The troupe has written, directed and starred in two feature-length films, Hot Rod, released in 2007, and Popstar: Never Stop Never Stopping, co-produced by Judd Apatow and released in 2016.

In the summer of 2008, the trio rented a home in Los Angeles and began recording their debut studio album, Incredibad (2009), over the course of three months. The album is composed of new songs and pre-existing songs debuted and recorded for SNL. Many songs recorded for the album would later premiere as Digital Shorts in the following season of SNL. In contrast to their work at SNL, the troupe went through each song in detail, taking their time to craft the album. For the first time, the group incorporated professional mixing and mastering, leading to an improved sound quality of the recordings. The first song they created for the record "Jizz in My Pants", was the lead single and debuted as an SNL Digital Short in December 2008. It received millions of views, and was their first single to go platinum by the Recording Industry Association of America.

Incredibad was released a dual CD/DVD set in February 2009. Their next significant viral success was "I'm on a Boat", a collaboration with T-Pain that spoofs hip-hop excess. The trio had met T-Pain when he guested on SNL a year prior, who confirmed he was a fan of Hot Rod. "I'm on a Boat" was a bigger success than its predecessor, going double-platinum and earning a nomination for Best Rap/Sung Collaboration at the 52nd Grammy Awards. Although not an official single, based on digital downloads, "Like a Boss" was certified gold. The record sold nearly 250,000 units in 2009, making it the year's eighth bestselling hip hop album.

Taccone quit SNL in 2010, but nevertheless returned for the following seasons to produce Digital Shorts related to their musical work.

The comedic influences of the group include SNL forebears such as Adam Sandler, Chris Farley and Mike Myers, as well as luminaries such as Steve Martin, Mel Brooks, the Monty Python troupe and the Marx Brothers. While the group is most strongly inspired by hip-hop and R&B, the lyrics are commonly rooted in self-deprecation as is reflected in a 2011 interview conducted shortly before the release of Turtleneck and Chain. The Lonely Island's debut Incredibad was produced with the goal in mind to make an impact on listeners just as They're All Gonna Laugh At You (1993), a musical comedy album by Adam Sandler, which heavily influenced Samberg. Songs by the Lonely Island rarely exceed three minutes, as brevity is very important to the troupe, who believe that is "about as much as the audience can stand."

Despite these obstacles, the trio regrouped in late 2012 to begin recording their third album for Republic Records, which they titled The Wack Album (a homage to minimalist titles such as The White Album). Rather than rent the same home in Encino, they cut the album in nearby Los Feliz at a home equipped with a professional recording unit. Taccone and Samberg again lived together; Schaffer, now with a family, simply drove over each day to record and write. For the album's production, they solidified song premises long before receiving beats for each song, which were culled from both high-level and low-level producers. In some cases, the trio made the beats themselves.

The album's lead single, "YOLO" featuring Adam Levine and Kendrick Lamar, premiered on SNL in January 2013. The song is an anthem parodying the phrase "you only live once" and a culture lacking caution and responsibility. It was their first return to SNL since their respective departures; as such, the video was co-funded by the program. To promote the album, the trio released music videos for each song each Wednesday ("Wack Wednesdays") leading up to its release. Among the music videos produced include "Diaper Money" (a trap song regarding adulthood, aging, and impending death), "Semicolon" (which spoofs the popularity of hashtag rap), and "Go Kindergarten". "Spring Break Anthem" juxtaposes raucous and irresponsible spring break behavior with descriptions of same-sex marriage. "We wanted to show just how ridiculous it is that spring break behavior is considered normal and gay marriage is insane when it's actually the opposite," said Schaffer. The group wanted to mount a full-scale tour behind the album, but other opportunities (Samberg's comedy series Brooklyn Nine-Nine was just ordered as a series by Fox at the time) made it difficult.

In early 2014, the group collaborated to write "Everything Is Awesome," a song featured in The Lego Movie, with Shawn Patterson, Joshua Bartholomew, and Lisa Harriton. The song, performed by Tegan and Sara, also features in the Lonely Island. It was nominated for the Academy Award for Best Original Song at the 87th Academy Awards.

In 2016 the group released the movie "Popstar: Never Stop Never Stopping." as well a corresponding Soundtrack album. The trio promoted the film by airing a Digital Short for the track "Finest Girl (Bin Laden Song) during the Saturday Night Live season 41 finale.