The idea of establishing INSANIAH was triggered by two state government officials, in 1993 namely the Honourable Dato 'Paduka Hj. Ahmad Basri Mohd Akil, Kedah State Secretary and Mr. Hj. Sukri Hashim, General Manager of the Yayasan Islam Kedah (YIK), when theyvisited Egypt, Cairo, to observe Kedah students studying at Al-Azhar University and to look into their welfare. From here, there was a proposal to be submitted to the state government, to establish an Islamic higher education centre in the state of Kedah Darul Aman.

In this regard, Yang Berhormat Menteri Besar Kedah Darul Aman, Tan Sri Dato 'Sri Hj. Osman Hj. Arof hadproposed that a working paper should be carried out on the setting up of the Islamic Institute of Higher Learning in the state of Kedah which implemented a twinning program with Al-Azhar University, Egypt and made a working visit to the Al-Azhar University from 26 to 31 March 1994.

The University of al-Azhar made a response to the State of Kedah from from 1stSeptember until 7thSeptember 1994 led by his Rector, His Excellency Prof. Dr. Abdul Fatah Al-Sheikh Husaini until the MOU cooperation agreement was signed at Wisma Darul Aman, Kedah by former Kedah Menteri Besar, Tan Sri Dato' Seri Hj. Osman Bin Hj. Aroff with Al-Azhar University Rector, Prof. Dr. Abd Fattah Husaini El-Syeikh on the 3rd of September 1994.

Following this pursuit, the Kedah State Legislative Assembly has approved the establishment ofINSANIAH, on 7th December 1994 under the enactment No 4 of 1995 and subsequently gazetted on 22nd June 1995.

The institution is named as 'Institut Agama Islam Negeri Kedah Darul Aman' or its abbreviation is INSANIAH. The name of this institute in Arabic is 'Al Jamiah Al Islamiah Al Hukumiah Bi Kedah Darul Aman'.

INSANIAH was then granted a status (Government Higher Education Institution (IPTK)) by the Ministry of Education Malaysia and registered under the Education Act 1996 with K/IPTK/07(021) registration number. INSANIAH also has an executive body known as INSANIAH Council which functions as a body that manages, regulates and administers INSANIAH. This INSANIAH Council is chaired by Yang Berhormat Menteri Besar Kedah Darul Aman.

INSANIAH commenced its operation on October 1st 1995 and at that time only conducted an Islamic Study twinning program with Al-Azhar University, Egypt, offering first-degree degree programs in the fields of Usuluddin, Syariah and Arabic. There were only 9 lecturers at that time with Professor Madya consisting of 6 from Al-Azhar University, one from Indonesia and 2 from Malaysia. The first intake was of 43 people in the 1995/1996 session.

In the early stages of the establishment of INSANIAH, it was placed on a temporary campus at No 45, Lorong Perak 18, Seri Mergong, 05150 Alor Setar Kedah. The campus is located in the Mergong Light Industrial Park area, approximately 1.5 Kilometers from the city of Alor Setar, Kedah Darul Aman. In January 1998, INSANIAH was given the allocation by the state government worth about RM 7 million, by purchasing two building blocks located at Taman Wira Mergong, Jalan Sultanah, 05350 Alor Setar, Kedah Darul Aman.
In 2004 INSANIAH was allocated by the state government for RM 7.3 million to build an additional 2-blocks 4-storey buildings on its main campus.

In May of 2000, INSANIAH has stepped up again with the establishment of a second campus at Jalan Kg. Baru Alor Setar was named the Management Kulliyyah Branch Campus to coordinate the Diploma in Management, Accounting and Diploma programs which started the 2000/2001 study session on 11th August 2000. A year later INSANIAH offered a Diploma in Information Technology which began its 2001/2002 study session . All the programmes offered are regulated by Universiti Utara Malaysia (UUM).

INSANIAH has also been granted recognition that in January 2001, the Kedah State Government had made a decision by changing Kedah Darul Aman's Ma'ahad Tahfiz Al-Quran (MTAQ) administration which operated since 1985 under the Yayasan Islam Negeri Kedah (YINK) and the Majlis Agama Islam Negeri Kedah (MAIK) to INSANIAH.

The development of INSANIAH is not only from a physical point of view even though plans are designed to upgrade INSANIAH to the University College through various strategic planning workshops and meetings. As a result, on 15th of May 2006, INSANIAH has submitted a letter of approval to be upgraded as a Kolej Universiti INSANIAH. Dato'Mustafa Mohamad, the Minister of Higher Education at that time had submitted an upgrade letter to Prof Dato' Dr Sayyid Muhammad Aqiel Ali Al Mahdaly, Rector of INSANIAH at that time, at Cinta Sayang Golf and Country Club, Sungai Petani. Starting from that moment, INSANIAH underwent a massive transformation with the admission of many students including from abroad.

In the era of YAB Menteri Besar, Dato'Seri Ustaz Haji Azizan Bin Abdul Razak became Chairman of the Board of INSANIAH, he appointed Prof Dato' Dr Jamil Osman as the fourth Rector of INSANIAH on 1st of May 2008. INSANIAH continued to move forward and during the year 2009 INSANIAH has offered a total of 40 study programmes ranging from the Foundation programmes until PhD compared to just 7 programmes before. A total of 4 Kulliyyahs and new academic centers were set up namely Kulliyyah of Engineering and Technology, Kulliyyah of Nursing, Centre for Graduate and Research, and Cebtre for Foundation Studies.

INSANIAH also opened its new branch campus in Bandar Aman Jaya Sungai Petani after the approval to operate its branch campus operations on 1stJanuary 2009 which was delivered by Dr Zubaidah Binti Aman, Principal Assistant Director of the Department of Higher Education Malaysia. As a result, the first student of Sungai Petani campus began enrolling on the 19th of Januaryin Multimedia and Creativity.

At the 10th Convocation Ceremony, on the 12th of August 2008, His Royal Highness Tuanku Sultan Kedah was proclaimed as the Chancellor of Kolej Universiti INSANIAH. At the same ceremony, Dato’ Dr Abdul Halim Ismail was appointed as the first Pro Chancellor of INSANIAH.

On February 18th2009, INSANIAH continued to create history as the dream of getting a more conducive and comfortable campus began to run in the course of a planned campus ground breaking ceremony of INSANIAH Kuala Ketil which was officiated by YAB Dato 'Seri Ustaz Haji Azizan Abdul Razak. The land area of 832 acres is expected to be completed in the first phase of 2012.