In 1941 the U.S. Army Ordnance Board observed the effectiveness of submachine guns employed in Western Europe, particularly the German 9×19mm MP 40 and British Sten guns, and initiated a study to develop its own Sten-type submachine gun in October 1942. The Ordnance Department requested the army submit a list of requirements for the new weapon, and ordnance in turn received a separate list of requirements from both the infantry and cavalry branches for a shoulder-fired weapon with full- or semi-automatic fire capability in caliber .45 ACP or .30 Carbine.
The two lists of requirements received by ordnance were then reviewed and amended by officials at Aberdeen Proving Ground. The amended requirement called for an all-metal weapon of sheet metal construction in .45 ACP caliber, designed for fast and inexpensive production with a minimum of machining, and featuring a dual full-automatic and semi-automatic fire capability, a heavy bolt to keep the cyclic rate under 500rpm, and the ability to place 90 percent of all shots fired from a standing position in full-automatic mode on a 6x6 foot target at a range of 50 yards. The benchmark for testing the M3's performance would be the M1928A1 Thompson.
George Hyde of General Motors's Inland Division was given the task of designing the new weapon, while Frederick Sampson, Inland Division's chief engineer, was responsible for preparing and organizing tooling for production. The original T15 specifications of 8 October 1942 were altered to remove a semi-automatic fire function, as well as to permit installation of a kit to convert the weapon's original .45 caliber to that of 9mm Parabellum. The new designation for the 9mm/.45 full-automatic-only weapon was the T20.
Five prototype models of the .45 T20 and five 9mm conversion kits were built by General Motors for testing. At the initial military trials, the T20 successfully completed its accuracy trials with a score of 97 out of 100. In the endurance test, the test weapon fired more than 5,000 rounds of brass-case ammunition, with only two failures to feed. Four army test boards composed of multiple army service branches independently tested and reviewed the T-20 prototype weapons including the Airborne Command, the Amphibious Warfare Board, the Infantry Board, and the Armored Forces Board. All four branches reported malfunctions caused by the M3 magazine, mostly attributed to defective or jammed magazine followers.
The T-20 was formally approved by U.S. Army Ordnance for production at GM's Guide Lamp Division in Anderson, Indiana in December 1942 as the U.S. Submachine Gun, Caliber .45, M3. Guide Lamp produced 606,694 of the M3 variant submachine gun between 1943 and 1945. Although reports of malfunctions caused by the single-feed magazine design appeared during the initial firing trials, no changes were made to the M3 magazine.
Around 1000 M3 submachine guns in caliber 9mm Parabellum were built by Guide Lamp. These original 9mm guns, identified by the markings "U.S. 9 mm S.M.G." on the left side of the magazine well (without any model designation, such as M3), were delivered to the OSS in 1944. Additionally, Rock Island Arsenal and Buffalo Arms Corporation manufactured parts for a limited number of 9mm conversion kits for the M3. Though 25,000 kits were originally requested for procurement, this was changed to a recommendation by the Ordnance Committee in December 1943 that only 500 9mm conversion kits be obtained. Procurement was authorized in February 1944, but it is believed that only a limited number of kits were actually produced. These conversion kits included a new 9mm barrel, replacement bolt and recoil springs, a magazine well adapter for use with Sten magazines, and a replacement 9mm STEN magazine of British manufacture. As the M3's sights were not altered for the new cartridge, the 9mm M3 shot high at 100 yards, but the sighting error was deemed inconsequential. The OSS also requested approximately 1,000 .45-caliber M3 submachine guns with an integral sound suppressor (designed by Bell Laboratories). Specially drilled barrels and barrel nuts were manufactured by Guide Lamp, while the High Standard Firearms Company produced the internal components and assembled the weapon. The Bell Laboratories suppressor was estimated to be only 80% as efficient as the British suppressed STEN Mk IIS.
With its stamped, riveted, and welded construction, the M3 was originally designed as a minimum-cost small arm, to be used and discarded once it became inoperative. As such, replacement parts, weapon-specific tools, and sub-assemblies were not made available to unit-, depot-, or ordnance-level commands at the time of the M3's introduction to service. In 1944, a shortage of M3 submachine guns created by the need for interim production changes forced U.S. Army Ordnance workshops to fabricate pawl springs and other parts to keep existing weapons operational.
After its introduction to service, reports of unserviceability of the M3 commenced in February 1944 with stateside units in training, who reported early failure of the cocking handle/bolt retraction mechanism on some weapons. Similar reports later came from U.S. forces in Britain who were issued the M3. An investigation revealed several deficiencies in the construction of the M3's bolt retraction mechanism, together with issues concerning barrel removal and retention as well as easily bent rear sights. As a result, several product improvements were incorporated into all new M3 production, including a new design retracting pawl with improved heat treatment, a new spring stop fitted to the right-hand brace of the retracting lever, a modified ejector featuring a cocking lever trip, a larger ratchet pad with improved heat treatment to more securely retain the barrel assembly, and strengthening gussets fitted to the sides of the fixed 'L' rear sight. After new complaints were raised about accidental magazine releases and failure of the wire buttstock to remain in place in the collapsed position, two additional changes were made to M3 production and approved by Ordnance on 31 August 1944. This included a small sheet metal guard around the magazine release button, and the inclusion of a stop between the two rods forming the wire stock at the butt end.
In December 1944, in response to field requests for further improvements to the basic M3 design, an improved, simplified variant of the M3 was introduced, the M3A1. 15,469 M3A1 submachine guns were produced before the end of World War II.
It was originally hoped that the M3 could be produced in numbers sufficient to cancel future orders for the Thompson submachine gun, and to allow the army to gradually withdraw the Thompson from front-line service. However, due to unforeseen production delays and requests for modifications, the M3 never fully replaced the Thompson during World War II, and purchases of the Thompson continued until February 1944. A total of 622,163 M3/M3A1 submachine guns of all types were assembled by the end of World War II, by which time the Thompson, at over 1.5 million guns produced, outnumbered the M3 and M3A1 in service by a factor of nearly three to one. The M3A1 did not see combat in World War II, but was used in Korea and Vietnam.
The M3 and M3A1 were largely withdrawn from U.S. frontline service beginning in 1959 and into the early 1960s, but continued to be used until the mid-1990s as on vehicle equipment aboard armored vehicles. During the mid 1970s tank drivers of the 1st Battalion 67th Armored attached to the 2nd Armored Division were issued the M3A1, because of its size and portability. During the 1991 Gulf War, drivers of the 19th Engineer Battalion attached to the 1st Armored Division were equipped with the M3A1 as part of their vehicle TOE.