The council plays an important role in setting policy and development of relations with mainland China and advising the central government. The agency funds and indirectly administers the Straits Exchange Foundation which is the official intermediary with the PRC.
In November 1987, relations between the two sides of the Taiwan Strait have improved a lot after ROC government began to allow family-related visits to Mainland China. The Executive Yuan therefore established the Inter-Agency Mainland Affairs Committee in August 1988 as a task force to handle mainland-related affairs among the authorities. In April 1990, the ROC government drafted the Organization Act for the Mainland Affairs Council to strengthen Mainland China policy making and to enhance policy making efficiency. The third reading of the act was passed by the Legislative Yuan on 18 January 1991. On 28 January 1991, the act was promulgated by PresidentLee Teng-hui thus officially authorized the Mainland Affairs Council to be the agency for the overall planning and handling of affairs towards Mainland China.