The term is thought to have originated in the 1850s as "lime-juicer", and was later shortened to "limey". It was originally used as a derogatory word for sailors in the Royal Navy, because of the Royal Navy's practice since the beginning of the 19th century of adding lemon juice or lime juice to the sailors' daily ration of watered-down rum (known as grog), in order to prevent scurvy.
Eventually the term lost its naval connection and was used to denote British people in general. In the 1880s, it was used to refer to English immigrants in Australia, New Zealand and South Africa. Although the term may have been used earlier in the U.S. Navy as a slang word for a British sailor or a British warship, such usage was not documented until 1918. By 1925, its usage in American English had been extended to mean any Englishman, and the expression was so commonly known that it was used in American newspaper headlines.