Fokker's chief designer, Reinhold Platz, had been working on a series of experimental planes, the V-series, since 1916. These aircraft were characterized by the use of cantilever wings. Junkers had originated the idea in 1915 with the first all-metal aircraft, the Junkers J 1, nicknamed Blechesel ("Sheet Metal Donkey" or "Tin Donkey"). The resulting wings were thick, with a rounded leading edge. This gave greater lift and more docile stalling behavior than the thin wings commonly used at the time.
Late in 1917, Fokker built the experimental V 11 biplane, fitted with the standard Mercedes D.IIIa engine. In January 1918, Idflieg held a fighter competition at Adlershof. For the first time, frontline pilots would directly participate in the evaluation and selection of new fighters. Fokker submitted the V 11 along with several other prototypes. Manfred von Richthofen flew the V 11 and found it tricky, unpleasant, and directionally unstable in a dive. In response to these complaints, Reinhold Platz lengthened the rear fuselage by one structural bay, and added a triangular vertical fin in front of the rudder. Upon flying the modified V 11, Richthofen praised it as the best aircraft of the competition. It offered excellent performance from the outdated Mercedes engine, yet was safe and easy to fly. Richthofen's recommendation virtually decided the competition, but he was not alone in recommending it. Fokker immediately received a provisional order for 400 production aircraft, which were designated D.VII by Idflieg.
Fokker's factory was not up to the task of meeting all D.VII production orders. Idflieg therefore directed Albatros and AEG to build the D.VII under license, though AEG did not ultimately produce any aircraft. Because the Fokker factory did not use detailed plans as part of its production process, Fokker simply sent a completed D.VII airframe for Albatros to copy. Albatros paid Fokker a five percent royalty for every D.VII built under license. Albatros Flugzeugwerke and its subsidiary, Ostdeutsche Albatros Werke (OAW), built the D.VII at factories in Johannisthal (designated Fokker D.VII (Alb)) and Schneidemühl (Fokker D.VII (OAW)), respectively. Aircraft markings included the type designation and factory suffix, immediately before the individual serial number.
Some parts were not interchangeable between aircraft produced at different factories, even between Albatros and OAW. Additionally each manufacturer tended to differ in nose paint styles. OAW produced examples were delivered with distinctive mauve and green splotches on the cowling. All D.VIIs were produced with either the five-color Fünffarbiger five-color, or less often the four-color Vierfarbiger lozenge camouflage covering except for early Fokker-produced D.VIIs, which had a streaked green fuselage. Factory camouflage finishes were often overpainted with colorful paint schemes or insignia for the Jasta, or the individual pilot.
In September 1918, eight D.VIIs were delivered to Bulgaria. Late in 1918, the Austro-Hungarian company MÁG (Magyar Általános Gépgyár - Hungarian General Machine Company) commenced licensed production of the D.VII with Austro-Daimler engines. Production continued after the end of the war, with as many as 50 aircraft completed.