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The term Naxalites comes from Naxalbari, a small village in West Bengal, where a section of the Communist Party of India (Marxist) (CPI-M) led by Charu Majumdar, Kanu Sanyal, and Jangal Santhal initiated an uprising in 1967. However, the uprising itself formed after two decades of minor communist activity which first began in South India. In current-day Telangana, an Indian state which split from the larger Andhra Pradesh, communist mentality began to manifest, and in July of 1948, a major event known as the Telangana Struggle occurred in which the lower-classes of 2,500 villages of the former Hyderabad State formed a series of communes.Furthermore, in same year, far-leftist mentality was solidified within the government structure by the publication of two major communist documents.. The first, the Andhra Thesis, expressed "that 'Indian revolution' follow the Chinese path of protracted people's war" and how the "Indian revolution" must be similar to the Chinese people's war, in which the entirety of the population from the rural and agrarian areas of the nation should participate in conflict. The second document would be the Andhra Letter which was published in June of 1948, and the letter spoke of how Mao Zedong's concept of New Democracy should be implemented in an Indian revolution. In terms of communists in the young nation, the Communist Party of India (CPI) formed in 1920 had internal conflict because the CPI had support from the Soviets, and by 1964, the Communist Part of India (Marxist) was established. From the Telangana Struggle and the two political manifestos, the Naxalites were not the first instance of communist activity in the newly-formed country.

On 18 May 1967, the Siliguri Kishan Sabha, of which Jangal was the president, declared their support for the movement initiated by Kanu Sanyal, and their readiness to adopt armed struggle to redistribute land to the landless. The following week, a sharecropper near Naxalbari village was attacked by the landlord's men over a land dispute. On 24 May, when a police team arrived to arrest the peasant leaders, it was ambushed by a group of tribals led by Jangal Santhal, and a police inspector was killed in a hail of arrows. This event encouraged many Santhal tribals and other poor people to join the movement and to start attacking local landlords.

These conflicts go back to the failure to implement the 5th and 6th Schedules of the Constitution of India.^{[neutrality is disputed]} In theory these Schedules provide for a limited form of tribal autonomy with regard to exploiting natural resources on their lands, e.g. pharmaceutical and mining, and 'land ceiling laws', limiting the land to be possessed by landlords and distribution of excess land to landless farmers and labourers.

Mao Zedong provided ideological leadership for the Naxalbari movement, advocating that Indian peasants and lower class tribals overthrow the government of the upper classes by force. From 1965-1966, the Communist Party of India (Marxist) had a major figure by the name of Charu Majumdar, and he was a major figure of the movement who believed in Zedong's "protracted people's war" ideology. A large number of urban elites were also attracted to the ideology, which spread through Charu Majumdar's writings, particularly the 'Historic Eight Documents' which formed the basis of Naxalite ideology. These documents were essays formed from the opinions of communist leaders and theorists such as Mao Zedong, Karl Marx, and Vladimir Lenin. Using People's courts, similar to those established by Mao, Naxalites try opponents and execute with axes or knives, beat, or permanently exile them.

At the time, the leaders of this revolt were members of the CPI (M), which joined a coalition government in West Bengal just a few months back. However, this plan of action led to dispute within the party as Charu Majumdar believed the CPM was to support a doctrine based on revolution similar to that of the People's Republic of China. Leaders like land minister Hare Krishna Konar had been until recently "trumpeting revolutionary rhetoric, suggesting that militant confiscation of land was integral to the party's programme."However, now that they were in power, CPI (M) did not approve of the armed uprising, and all the leaders and a number of Calcutta sympathizers were expelled from the party. This disagreement within the party soon culminated with the Naxalbari Uprising on May 25^th of the same year, and Majumdar led a group of dissidents to start a revolt in the West Bengal village of Naxalbari. The uprising occurred because an individual who was of tribal background (Adhivasi) was attacked by a group of people who acted on the orders of the local landlords, and this caused other Adhivasis in the area to retake their land, and after seventy-two days of revolt the CPI (M) coalition government suppressed this incident.

Subsequently, In November 1967, this group, led by Sushital Ray Chowdhury, organised the All India Coordination Committee of Communist Revolutionaries (AICCCR). Violent uprisings were organised in several parts of the country. On 22 April 1969 (Lenin's birthday), the AICCCR gave birth to the Communist Party of India (Marxist–Leninist) (CPI (ML)).

Practically all Naxalite groups trace their origin to the CPI (ML). A separate offshoot from the beginning was the Maoist Communist Centre, which evolved out of the Dakshin Desh group. The MCC later fused with the People's War Group to form the Communist Party of India (Maoist). A third offshoot was that of the Andhra revolutionary communists, mainly represented by the UCCRI(ML), following the mass line legacy of T. Nagi Reddy, which broke with the AICCCR at an early stage.

The early 1970s saw the spread of Naxalism to almost every state in India, barring Western India. During the 1970s, the movement was fragmented into disputing factions. By 1980, it was estimated that around 30 Naxalite groups were active, with a combined membership of 30,000.

Recruitment and Financial Base

In terms of recruitment, the Naxalites focus heavily on the idea of a revolutionary personality, and in the early years of the movement, Charu Majumdar expressed how this type of persona is necessary for maintaining and establishing loyalty among the Naxalites. According to Majumdar, he believed the essential characteristics of a recruit must be selfishness and the ability to self-sacrifice, and in order to produce such a specific personality, the organization began to recruit students and youth. In addition to entrenching loyalty and a revolutionary personality within these new insurgents, Naxalites chose the youth due to other factors. The organization selected the youth because these students represented the educated section of Indian society, and the Naxalites felt it necessary to include educated insurgents because these recruits would then be crucial in the duty of spreading the communist teachings of Mao Zedong. In order to expand their base, the movement relied on these students to spread communist philosophy to the uneducated rural and working class communities. Majumdar believed it necessary to recruit students and youth who were able to integrate themselves with the peasantry and working classes, and by living and working in similar conditions to these lower-class communities, the recruits are able to carry the communist teachings of Mao Zedong to villages and urban centers.

The financial base of the Naxalites is diverse because the organization finances itself from a series of sources. The mining industry is known to be a profitable financial source for the Naxalites, as they tend to extort about 3% of the profits from each mining company that operates in the areas under Naxal control. In order to continue mining operations, these firms also pay the Naxalites for "protection" services which allows miners to work without having to worry about Naxalite attacks. The organization also funds itself through the drug trade, where it cultivates drugs in areas of Orissa, Andhra Pradesh, Jharkhand, and Bihar. Drugs such as marijuana and opium are distributed throughout the country by middlemen who work on behalf of the Naxalites. The drug trade is extremely profitable for the movement, as about 40% of Naxal funding comes through the cultivation and distribution of opium.