Australian military aviation can trace its history back to before the commencement of World War I when the Central Flying School (CFS) began operating in March 1914 at Point Cook, Victoria, south-west of Melbourne. The Federal Government had acquired land at Point Cook in mid-1913 to establish the nation's first military flying school, using two BE-2a biplanes and two Deperdussin monoplanes together with a Bristol Box-kite ordered in 1912. Starting with two officer instructors and a few mechanics, the CFS taught selected Army personnel to fly before they joined the Australian Flying Corps.

During World War I the Australian Flying Corps (AFC) operated as an element of the Australian Imperial Force and many of its pilots saw active duty overseas. Australian military airmen went to New Guinea in November 1914 and to Mesopotamia (Iraq) in 1915. Later, squadrons served in Sinai and Palestine, and on the Western Front. The first Australian airman to die in action was Lieutenant George Merz, one of the first pilot graduates from Point Cook, who was killed by Arabs in Mesopotamia. During the war, 65 Australians — many serving with British air services — became aces by shooting down at least five planes, and Lieutenant Frank McNamara, who trained at Point Cook, was awarded Australia's sole air Victoria Cross while serving with No 1 Squadron, AFC.

Throughout this period Point Cook remained the focal point of military aviation in Australia, serving as a flying training unit as well as the assembly point for most AFC units going overseas. In the first months of 1919 the squadrons of the AFC abroad began handing their aircraft over to Britain's Royal Air Force in preparation for disbandment and return home. Meanwhile, Australia took delivery of 20 Avro 504K and 12 Sopwith Pup trainers ordered from Britain to replace the mixture of aging aircraft types operating at the CFS. 

In June 1919, the British Government offered a gift of military aircraft, the object being 'to assist Dominions wishing to establish air forces and thereby develop defence of the Empire by air'. The Australian Government quickly accepted the offer but requested a delay to the dispatch of the aircraft until arrangements could be made for their reception. The "Imperial Gift" consisted of 100 aircraft, spare engines, tools, motor transport and 13 transportable hangars all packed away in over 19,000 packing cases. Another 28 aircraft were provided at the same time to replace aircraft donated by the people of Australia to Britain during the war.

With dozens of new aircraft on their way, the pressure to form the new air service was immense. In its report dated 30 June 1919, an Air Service Committee recommended the creation of a temporary Australian Air Corps (AAC) to take delivery of consignments of Imperial Gift aircraft and stores. An Air Board, answering to the Minister for Defence, would administer the new service. According to the Commonwealth Gazette of 31 December 1919, the CFS, its personnel and equipment were seconded from the Army and placed under the AAC from 1 January 1920.

During its short existence, the AAC consisted of one flying unit (the CFS), and one airfield (Point Cook) and a peak strength of 160 personnel. Most of its aircraft were still in storage or in transit from Britain but it operated a number of training, bomber/reconnaissance and fighter aircraft at Point Cook. It was a uniformed service with a command and rank structure and most importantly, personnel with extensive operational experience from World War I. Nominally under command of the Director of Air Services at Army Headquarters, the AAC was Australia's first post-war air force, albeit only an interim one.

In November 1920 regulations were promulgated for an Air Board to administer a new permanent air service that would serve the needs of both the Army and the Navy, along with a superior policy coordinating body to be known as the Air Council chaired by the Minister for Defence. The Air Board held its first meeting on 22 December. The Commonwealth Gazette of 31 March 1921 announced the formation of the Australian Air Force. On this day the AAC was disbanded and replaced by the Australian Air Force (AAF) as a separate service, initially with just 21 officers and 128 airmen on strength. The prefix Royal was granted soon after and promulgated on 13 August 1921.