The Asylum was founded by former Village Roadshow executives David Rimawi, Sherri Strain, and director David Michael Latt in 1997. The company focused on producing straight-to-video low-budget films, usually in the horror genre, but were unable to find a market due to competition from major studios, such as Lions Gate Entertainment. In 2005, the company produced a low-budget adaptation of H. G. Wells' The War of the Worlds, which was released in the same year as Steven Spielberg's adaptation of the same material. Blockbuster Inc. ordered 100,000 copies of The Asylum's adaptation, a significantly larger order than any of the company's previous releases, resulting in Latt and Rimawi reconsidering their business model.
In 2007, similarities between the distributor's titles and those of major studios were reported. For example, the film Transmorphers bears a number of similarities to the film Transformers, which was released theatrically two days after the release of Transmorphers. According to Latt, "I'm not trying to dupe anybody. I'm just trying to get my films watched. Other people do tie-ins all the time; they’re just better at being subtle about it. Another studio might make a giant robot movie that ties into the Transformers release and call it Robot Wars. We’ll call ours Transmorphers." In 2008, 20th Century Fox threatened legal action against The Asylum over The Day the Earth Stopped, a film capitalizing on The Day the Earth Stood Still.
In May 2012, Universal Studios filed a lawsuit against The Asylum for their film American Battleship, claiming infringement on their movie Battleship. As a result, the studio changed the title to American Warships.
In November 2012, Warner Bros., New Line Cinema, MGM and The Hobbit producer Saul Zaentz commenced legal action against The Asylum for their film Age of the Hobbits, claiming that they were "free-riding" on the worldwide promotional campaign for Peter Jackson's forthcoming films. The Asylum claimed its movie is legally sound because its hobbits are not based on the J. R. R. Tolkien creations. The lawsuit resulted in a temporary restraining order preventing The Asylum from releasing the film on its scheduled release date.
The Asylum produced Z Nation for the Syfy Network. The show about an a group that attempts to get the only known person with immunity to a zombie virus from New York to the last operating lab in California. According to show-runner Karl Shaefer, the show will bring “a sense of hope to the horror of the apocalypse.” Ratings for Z Nation have been about 1.6 million per episode, and has been renewed for a second season.
The Asylum's usual budget for a production is reportedly "well under a million dollars", and it typically breaks even after about three months. The Asylum has never lost money on a film. The studio's productions have been called B movies and "mockbusters". Latt prefers the term "tie-ins" to "mockbusters", stating that The Asylum's productions, even those that capitalize on major releases, contain original stories. Latt states that the studio plans its productions around the word of mouth of the financial prospects of upcoming films. The studio's films are usually released on video shortly before the theatrical release of a major studio film with similar themes or storylines.
The Asylum has also produced films with strong religious themes. For example, The Apocalypse was initially developed as a straightforward disaster film in the style of Deep Impact, but Latt states that certain buyers wanted the company to develop a religious film. As a result, the company consulted priests and rabbis in order to incorporate faith-based elements. The division Faith Films was created in order to distribute titles with such themes. Sunday School Musical was produced after The Asylum staff attended a seminar for marketing to a Christian audience where the seminar's host suggested that the perfect film would be a Christian version of High School Musical.
The Asylum productions sometimes feature more overt sexuality or graphic violence than their major studio counterparts, because The Asylum's releases are not in competition with films rated PG-13 by the Motion Picture Association of America. Rolf Potts of The New York Times described Transmorphers as having "no recognizable actors, no merchandising tie-ins and a garbled sound mix. Also unlike Transformers, it has cheap special effects and a subplot involving lesbians."
The 2008 release Death Racers featured the hip hop group Insane Clown Posse and wrestler Scott "Raven" Levy in major roles. In 2009 the Asylum released their first 3D comedy, Sex Pot, and in 2010 they produced SyFy's top rated creature film so far that year, Mega Piranha starring Barry Williams, Paul Logan, and the 1980s pop star Tiffany.