This research aims to understand the history and development of Islamic banking in Indonesia. This research is important because Islamic banking in its history and development has become a benchmark for the success and existence of Islamic economics in Indonesia, where the majority of the population is Muslim. This research is qualitative with a descriptive approach. The data collection technique uses the literature study method, which involves reviewing books, journal articles, laws and regulations, and various reports relevant to the history of Islamic banking. The research data were analyzed qualitatively through data reduction, data presentation, and conclusion drawing. This research answers several questions related to the purpose of establishment, legal basis, principles and functions of Islamic banks, as well as the differences between Islamic banks and conventional banks. This study found that the purpose of establishing Islamic banking is to introduce and develop the application of Islamic principles, sharia, and its traditions into financial, banking, and business transactions. Then, the prohibition of usury, focus on the public interest, accelerate growth, achieve a prosperous economy, the establishment of social and economic justice, and balanced income distribution. Islamic banking in Indonesia is regulated by Law No. 7/1992 on Banking, Law No. 10/1998 on Amendments to Law No. 7/1992 on Banking, and Law No. 21/2008 on Islamic Banking. The basic principles of Islamic banking are the principles of free maghrib (maysir, gharar, haram, riba, and batil), trust and prudence in the management of Islamic banking activities, and principles based on contracts, while the functions of Islamic banks are to collect funds, channel funds to people in need, and provide services in the form of Islamic banking services. The difference between Islamic banks and conventional banks is in the principle of implementation, Islamic banks are banks that adhere to sharia/Islamic principles, while conventional banks are generally based on regulations or mutual agreements.