The Andalusian horse is a descendent of Iberian horses from Spain and Portugal, and take their name from their place of origin, the Spanish province of Andalusia. Horses, including the ancestors of the Andalusian, have been shown by cave paintings to have been present on the Iberian Peninsula as far back as 20,000 to 30,000 BC.

Throughout history, the Iberian breeds have been influenced by many different people and cultures who occupied Spain, including the Celts, the Carthaginians, the Romans, various Germanic tribes and the Moors. Portuguese historian Ruy d'Andrade hypothesized that the ancient Sorraia breed was an ancestor of the Southern Iberian breeds, including the Andalusian.

However, genetic studies using mitochondrial DNA show that the Sorraia forms a cluster that is largely separated from most Iberian breeds. Mitochondrial DNA studies of the modern Andalusian horse of the Iberian peninsula and Barb horse of North Africa, present convincing evidence that both breeds crossed the Strait of Gibraltar and influenced one another. By the 15th century, the Andalusian had become a distinct breed, and was being used to influence the development of other breeds and was also used as a noted war horse.

Some of the earliest written pedigrees in recorded European history were kept by Carthusian monks, beginning in the 13th century. The Carthusians bred powerful, weight-bearing horses in Andalusia for the Crown of Castile, using the finest Spanish Jennets as foundation bloodstock. Because they could read and write, thus kept careful records, monastics were given the responsibility for horse breeding by certain members of the nobility, particularly in Spain. Andalusian breeding studs were formed in the late 1400s in Carthusian monasteries in Jerez, Seville and Cazalla.

The Iberian horse breeds were known as the "royal horse of Europe" and were present at every royal court and in many riding academies, including countries such as Austria, Italy, France and German The Conquistadors of the 16th century rode Spanish horses, particularly animals that came from Andalusia, and the modern Andalusian descended from similar bloodstock. During the reigns of Charles V (1500-1558) and Phillip II (1556-1581), Spanish horses were considered the finest in the world  These horses were a blend of Jennet and warmblood breeding, taller and more powerfully built than the original Jennet.

Though the Spanish horses of the 16th and 17th centuries had not yet reached the final form of the modern Andalusian, by 1667, the Spanish horse of Andalusia was called "the noblest horse in the world, the most beautiful that can be. He is of great spirit and of great courage and docile; hath the proudest trot and the best action in his trot, the loftiest gallop, and is the lovingest and gentlest horse, and fittest of all for a king in his day of triumph." by William Cavendish, the Duke of Newcastle.

Also in 1667, in his work New Method and Extraordinary Invention of Dressing Horses, Cavendish called Spanish horses the "princes" of the horse world, and reported that they were "unnervingly intelligent". During the 1800s, the Andalusian breed was threatened when many horses were stolen by Napoleon’s invading army; however, one herd of Andalusians was hidden from the invaders and subsequently used to renew the breed. Later, an epidemic in 1832 seriously affected Spain’s horse population, from which only one small herd survived at a stud at the monastery in Cartuja.