Before game engines, games were typically written as singular entities: a game for the Atari 2600, for example, had to be designed from the bottom up to make optimal use of the display hardware—this core display routine is today called the kernel by developers of games for older systems. Other platforms had more leeway, but even when the display was not a concern, memory constraints usually sabotaged attempts to create the data-heavy design that an engine needs. Even on more accommodating platforms, very little could be reused between games. The rapid advance of arcade hardware—which was the leading edge of the market at the time—meant that most of the code would have to be thrown out afterwards anyway, as later generations of games would use completely different game designs that took advantage of extra resources. Thus most game designs through the 1980s were designed through a hard-coded rule set with a small number of levels and graphics data. Since the golden age of arcade video games, it became common for video game companies to develop in-house game engines for use with first-party software.

A notable example of an in-house game engine on home consoles in the mid-1980s was the smooth side-scrolling engine developed by Shigeru Miyamoto's team at Nintendo for the Nintendo Entertainment System (NES). The engine they had developed for the side-scrolling racing game Excitebike (1984) was later employed for the scrolling platformer Super Mario Bros. (1985). This had the effect of allowing Mario to smoothly accelerate from a walk to a run, rather than move at a constant speed like in earlier platformers.

While third-party game engines were not common up until the rise of 3D computer graphics in the 1990s, there were several 2D game creation systems produced in the 1980s for independent video game development. These include Pinball Construction Set (1983), ASCII's War Game Construction Kit (1983), Thunder Force Construction (1984), Adventure Construction Set (1984), Garry Kitchen's GameMaker (1985), Wargame Construction Set (1986), Shoot-'Em-Up Construction Kit (1987), Arcade Game Construction Kit (1988), and most popularly ASCII's RPG Maker engines from 1998 onward. Klik & Play (1994) is another legacy offering that is still available.

The term "game engine" arose in the mid-1990s, especially in connection with 3D games such as first-person shooters with a first-person shooter engine. Epic games, founded by developer Tim Sweeney, debuted Unreal Engine in the year 1998.

Such was the popularity of Id Software's Doom and Quake games that, rather than work from scratch, other developers licensed the core portions of the software and designed their own grap…

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Producers of game engines decide how they allow users to utilize their products. Just as gaming is an industry, so are the engines they are built off. The major game engines come at varying prices, whether it be in the form of subscription fees or license payments. Unity and the Unreal Engine are currently the two most popular choices for game developers. Although the differences among the different game engines blur as they build their own tools on top of them, different game developers may be too used to a system to change, or attracted by the huge benefits of such engines regardless of pay-walls.

In the broader sense of the term, game engines themselves can be described as middleware. In the context of video games, however, the term "middleware" is often used to refer to subsystems of functionality within a game engine. Some game middleware does only one thing but does it more convincingly or more efficiently than general purpose middleware.

The four most widely used middleware packages that provide subsystems of functionality include RAD Game Tools' Bink, Firelight FMOD, Havok, and Scaleform GFx. RAD Game Tools develops Bink for basic video rendering, along with Miles audio, and Granny 3D rendering. Firelight FMOD is a low cost robust audio library and toolset. Havok provides a robust physics simulation system, along with a suite of animation and behavior applications. Scaleform provides GFx for high performance Flash UI and high-quality video playback, and an Input Method Editor (IME) add-on for in-game Asian chat support.

Other middleware is used for performance optimisation—for example 'Simplygon' helps to optimise and generate level of detail meshes, and 'Umbra' adds occlusion culling optimisations to 3d graphics.

Some middleware contains full source code, others just provide an API reference for a compiled binary library. Some middleware programs can be licensed either way, usually for a higher fee for full source code.