The Sparrow emerged from a late-1940s United States Navy program to develop a guided rocket weapon for air-to-air use. In 1947 the Navy contracted Sperry to build a beam riding version of a standard 5-inch (127 mm) HVAR, the standard unguided aerial rocket, under Project Hotshot. The weapon was initially dubbed KAS-1, then AAM-2, and, from 1948 on, AAM-N-2. The airframe was developed by Douglas Aircraft Company. The diameter of the HVAR proved to be inadequate for the electronics, leading Douglas to expand the missile's airframe to 8-inch (203 mm) diameter. The prototype weapon began unpowered flight-tests in 1947, and made its first aerial interception in 1952.
After a protracted development cycle the initial AAM-N-2 Sparrow entered limited operational service in 1954 with specially modified Skyknights all weather carrier night fighters. And in 1956, they were carried by the F3H-2M Demon and F7U Cutlass fighter aircraft. Compared to the modern versions, the Sparrow I was more streamlined and featured a bullet-shaped airframe with a long pointed nose.
Sparrow I was a limited and rather primitive weapon. The limitations of beam-riding guidance (which was slaved to an optical sight on single seater fighters and a radar with night fighters) restricted the missile to attacks against targets flying a straight course and made it essentially useless against a maneuvering target. Only about 2,000 rounds were produced to this standard.
As early as 1950 Douglas examined equipping the Sparrow with an active radar seeker, initially known as XAAM-N-2a Sparrow II, the original retroactively becoming Sparrow I. In 1952 it was given the new code AAM-N-3. The active radar made the Sparrow II a "fire and forget" weapon, allowing several to be fired at separate targets at the same time.
By 1955 Douglas proposed going ahead with development, intending it to be the primary weapon for the F5D Skylancer interceptor. It was later selected, with some controversy, to be the primary weapon for the Canadian Avro Arrow supersonic interceptor, along with the new Astra fire-control system. For Canadian use and as a second source for US missiles, Canadair was selected to build the missiles in Quebec.
The small size of the missile forebody and the K-band AN/APQ-64-radar limited performance, and it was never able to work in testing. After considerable development and test firings in the U.S. and Canada, Douglas abandoned development in 1956. Canadair continued development until the Arrow was cancelled in 1959.
A subvariant of the Sparrow I armed with the same nuclear warhead as the MB-1 Genie was proposed in 1958, but was cancelled shortly thereafter.
Concurrently with the development of the Sparrow I, in 1951, Raytheon began work on the semi-active radar homing version of Sparrow family of missiles, the AAM-N-6 Sparrow III. The first of these weapons entered United States Navy service in 1958.
The AAM-N-6a was similar to the -6, but used a new Thiokol liquid-fuel rocket engine for improved performance. It also included changes to the guidance electronics to make it effective at higher closing speeds. The -6a was also selected to arm the Air Force's F-110A Spectre (F-4 Phantom) fighters in 1962, known to them as the AIM-101. It entered production in 1959, with 7500 being built.
Another upgrade reverted to a Rocketdyne solid-fuel motor for the AAM-N-6b, which started production in 1963. The new motor significantly increased maximum range to 35 kilometres (22 mi) for head-on attacks.
During this year the Navy and Air Force agreed on standardized naming conventions for their missiles. The Sparrows became the AIM-7 series. The original Sparrow I and aborted Sparrow II became the AIM-7A and AIM-7B, despite both being out of service. The -6, -6a and -6B became the AIM-7C, AIM-7D and AIM-7E respectively.
25,000 AIM-7Es were produced, and saw extensive use during the Vietnam War, where its performance was generally considered disappointing. The mixed results were a combination of reliability problems (exacerbated by the tropical climate), limited pilot training in fighter-to-fighter combat, and restrictive rules of engagement that generally prohibited BVR (beyond visual range) engagements. The Pk (kill probability) of the AIM-7E was less than 10%; US fighter pilots shot down 59 aircraft out of the 612 Sparrows fired. Of the 612 AIM-7D/E/E-2 missiles fired, 97 (or 15.8%) hit their targets, resulting in 56 (or 9.2%) kills. Two kills were obtained beyond visual range.
In 1969 an improved version, the E-2, was introduced with clipped wings and various changes to the fuzing. Considered a "dogfight Sparrow", the AIM-7E-2 was intended to be used at shorter ranges where the missile was still travelling at high speeds, and in the head-on aspect, making it much more useful in the visual limitations imposed on the engagements. Even so, its kill rate was only 13% in combat, leading to a practice of ripple-firing all four at once in hopes of increasing kill probability. Its worst tendency was that of detonating prematurely, approximately a thousand feet in front of the launching aircraft, but it also had many motor failures, erratic flights, and fuzing problems. An E-3 version included additional changes to the fuzing, and an E-4 featured a modified seeker for use with the F-14 Tomcat.