Two wild, indigenous tea subspecies, Taiwan Mountain Tea and Red Sprout Mountain Tea, were discovered in Taiwan as early as the 17th century. However, they had little economic value and were not widely used due to their bitter taste and thin, brittle leaves.

During the Qing dynasty (1644-1912) different tea varieties were imported from the Wuyi Mountains in the Fujian province of China and cultivated in northern Taiwan. It became apparent that Taiwan's climate was excellent for cultivating tea trees with high mountain ranges, and a lot of sun and precipitation. 

The British merchant John Dodd, during a visit in 1865 to observe Taiwan’s camphor industry, discovered the Taiwanese tea market. In 1867, Dodd started a tea company in Wanhua, Taipei. Aware of British plans to develop a tea industry in India, he successfully sought profit in developing an alternative tea product on the island. In 1868 Dodd employed Chinese tea masters from the Fujian province to start a tea processing shop in Taipei, so that they could successfully complete the entire tea manufacturing process from within Taiwan instead of having to complete the manufacturing process in China. In the next year John Dodd began shipping Formosa Oolong tea to the United States. The tea he exported to New York became a surprise hit, making Taiwanese tea famous internationally and attracting other exporters to Taiwan.

During the Japanese occupation of Taiwan (1894-95), the Japanese expanded Taiwanese tea farms and encouraged the cultivation of local varieties. By the 1950s and 60s mainland China was subject to trade embargoes and during this time Taiwanese tea growers and marketers focused on existing, well-known varieties. It was not until after the mainland's products became more widely available that the market for teas became more competitive and the Taiwanese tea industry successfully changed its emphasis to producing speciality versions – especially of Oolongs – which are now synonymous with Taiwanese tea.

Taiwanese Oolongs have continued to gain in popularity with a familiar example being Tung Ting (Dong Ding) whose plants were some of the earliest brought to Taiwan from the Wuyi Mountains in China's Fujian Province about 150 years ago. Another well-known example is Dong Fang Meiren which got the name "Oriental Beauty" from Queen Elizabeth II in the 1960s, it was one of the most costly exported Taiwanese teas during the 2000s. Because of Taiwan's geography and climate, Taiwanese teas are some the best teas in the world.