In 1972, Mercedes-Benz developed the concept of a super compact automobile measuring less than 100 inches. However, at that time technical implementations of the concept was not possible because of the strict safety standards of Mercedes-Benz.

In 1989, Nicolas G. Hayek, the inventor of Swatch watches, announced that he wanted to bring a small city car onto the market. Hayek’s vision was to create a car that could be changed as easily as a Swatch watch. To this day, smart owners interchange body panels easily creating a new look to their vehicle in a matter of hours. To realize this idea, Hayek searched for an experienced automotive partner. The joint venture founded in 194 united the creative strength of Swatch with a hundred years of Mercedes-Benz engineering experience. The cooperation led to a unique vehicle concept and to a new automotive brand: smart. The name SMART is an acronym for Swatch Mercedes Art. The car was supposed to use innovative features and to be an affordable car for young people.

Three years after vehicle development work began in 1994, the smart fortwo made its world debut at the International Motor Show in Frankfurt in 1997. Production began in July 1998 in a new plant in Hambach, France.

The following October saw the new car being sold for the first time in nine European countries (Austria, Belgium, France, Germany, Italy, Luxembourg, the Netherlands, Spain and Switzerland). During the same year, smart became a wholly owned subsidiary of what is now Daimler AG. The smart fortwo is now available in 36 countries. The USA will be the 37th country to sell the smart fortwo.

The current smart brand logo denotes part of a circle representing the wheel and an arrow for "forward thinking". The original idea behind the very short “smart car” was that the vehicle would be easy to park. It is short enough to allow it to be parked “nose-in” where a conventionally sized car would have to parallel park.