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The Compact Disc is an evolution of LaserDisc technology. Prototypes were developed by Philips and Sony independently from the mid-to-late 1970s. The two companies then collaborated to produce a standard format and related player technology which was made commercially available in 1982.

In 1974, an initiative was taken by L. Ottens, a director of the audio industry group within the Philips Corporation in Eindhoven, the Netherlands. A seven-person project group was formed to develop an optical audio disc with a diameter of 20 cm with a sound quality superior to that of the large and vulnerable vinyl record. In March 1974, during a meeting of the audio group, two engineers from the Philips research laboratory recommended the use of a digital format on the 20 cm optical disc, because an error-correcting code could be added. It wasn't until 1977 that the directors of the group decided to establish a laboratory with the mission of creating a small optical digital audio disc and a small player. They chose the term "compact disc" in line with another Philips product, the compact cassette. Rather than the original 20 cm size, the diameter of this compact disc was set at 11.5 cm, the diagonal measurement of a compact cassette.

Meanwhile, Sony first publicly demonstrated an optical digital audio disc in September 1976. In September 1978, the company demonstrated an optical digital audio disc with a 150 minute playing time, 44,056 Hz sampling rate, 16-bit linear resolution, and cross-interleaved error correction code—specifications similar to those later settled upon for the standard Compact Disc format in 1980. Technical details of Sony's digital audio disc were presented during the 62nd AES Convention, held on March 13–16, 1979, in Brussels. Just before that, on March 8, 1979 Philips publicly demonstrated a prototype of an optical digital audio disc at a press conference called "Philips Introduce Compact Disc" in Eindhoven, Netherlands. Thirty years later, on March 6, 2009, Philips received an IEEE Milestone award with the following citation: "On 8 March 1979, N.V. Philips' Gloeilampenfabrieken demonstrated for the international press a Compact Disc Audio Player. The demonstration showed that it is possible by using digital optical recording and playback to reproduce audio signals with superb stereo quality. This research at Philips established the technical standard for digital optical recording systems."

Sony executive Norio Ohga, who later became the CEO and chairman of Sony, was convinced of the format's commercial potential and pushed further development despite widespread skepticism.