The Karyu began as an in-house project by Nakajima in early 1945 to apply what was being learned about jet aircraft from the Nakajima Kikka attack aircraft to a fighter design. The Kikka had been inspired by the successful German Messerschmitt Me 262, but the similarities to that aircraft were limited to general configuration. On the other hand, the design team led by Iwao Shibuya based the Karyu far more closely on the German aircraft, which had already proven itself quite formidable.
Proposed versions for Japanese Army development of the Nakajima Ki-201 Karyu were an interceptor - equivalent to the Me 262A-1a - and a fighter-bomber - equivalent to the Me 262A-2a. The powerplant would have been the 8.9 kN (2,001 lb) Ishikawajima Ne-130 turbojet or the 8.7 kN (1,951 lbf) Ne-230 turbojet.