In early 1927, during dinner at the home of M-G-M's studio chief Louis B. Mayer, Mayer and three of his guests - actor Conrad Nagel, director Fred Niblo and producer Fred Beetson - began talking about creating an organized group to benefit the entire film industry. They planned another dinner for the following week, with invitees from all the creative branches of the film industry.

And so, on January 11, 1927, 36 people met for dinner at the Ambassador Hotel in Los Angeles to hear a proposal to found the International Academy of Motion Picture Arts and Sciences ("International" dropped from the name soon after). Attendees included many of the biggest names in the industry at the time: Mayer, Mary Pickford, Sid Grauman, Jesse Lasky, George Cohen, Cecil B. DeMille, Douglas Fairbanks, Cedric Gibbons and Irving Thalberg. The group supported the concept and things came together quickly. By mid-March of that year, articles of incorporation were presented and the first officers were elected, with Douglas Fairbanks as president.

On May 11, 1927, a week after the state granted the Academy a charter as a non-profit organization, an official organizational banquet was held at the Biltmore Hotel. Of the 300 guests, 230 joined the Academy, paying $100 each. That night, the Academy also awarded its first honorary membership, to Thomas Edison. Initially five branches were established: producers, actors, directors, writers and technicians.