It is historically descended from the Mitsubishi zaibatsu, a unified company which existed from 1870, founded by Yataro Iwasaki, to 1947 and was disbanded during the occupation of Japan following World War II. The former constituents of the company continue to share the Mitsubishi brand, trademark, and legacy. Although the group companies participate in limited business cooperation, most famously through monthly "Friday Conference" executive meetings, they are formally independent and are not under common control. The four main companies in the group are The Bank of Tokyo-Mitsubishi UFJ (the largest bank in Japan), Mitsubishi Corporation (a general trading company), Mitsubishi Electric and Mitsubishi Heavy Industries (a diversified manufacturing company).

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The Mitsubishi company was established as a shipping firm by Yatarō Iwasaki (1834–1885) in 1870. In 1873, its name was changed to Mitsubishi Shokai. The name Mitsubishi (三菱) consists of two parts: "mitsu" meaning "three" and "hishi" (which becomes "bishi" under rendaku) meaning "water caltrop" (also called "water chestnut"), and hence "rhombus", which is reflected in the company's logo. It is also translated as "three diamonds".

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Mitsubishi was established in 1870, two years after the Meiji Restoration, with shipping as its core business. Its diversification was mostly into related fields. It entered into coal-mining to gain the coal needed for ships, bought a shipbuilding yard from the government to repair the ships it used, founded an iron mill to supply iron to the shipbuilding yard, started a marine insurance business to cater for its shipping business, and so forth. Later, the managerial resources and technological capabilities acquired through the operation of shipbuilding were utilized to expand the business further into the manufacture of aircraft and equipment. The experience of overseas shipping led the firm to enter into a trading business.

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In 1881, the company bought into coal mining by acquiring the Takashima Mine, followed by Hashima Island in 1890, using the production to fuel their extensive steamship fleet. They also diversified into shipbuilding, banking, insurance, warehousing, and trade. Later diversification carried the organisation into such sectors as paper, steel, glass, electrical equipment, aircraft, oil, and real estate. As Mitsubishi built a broadly based conglomerate, it played a central role in the modernization of Japanese industry.

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In February 1921, the Mitsubishi Internal Combustion Engine Manufacturing Company in Nagoya invited British Sopwith Camel designer Herbert Smith, along with several other former Sopwith engineers to assist in creating an aircraft manufacturing division. After moving to Japan, they designed the Mitsubishi 1MT, Mitsubishi B1M, Mitsubishi 1MF, and Mitsubishi 2MR.