Following a series of arcade game successes in the early 1980s, Nintendo made plans to create a cartridge-based console called the Family Computer, or Famicom. Masayuki Uemura designed the system. The console's hardware was largely based on arcade video games, particularly the hardware for Namco's Galaxian (1979) and Nintendo's Radar Scope (1980) and Donkey Kong (1981), with the goal of matching their powerful sprite and scrolling capabilities in a home system. Original plans called for an advanced 16-bit system which would function as a full-fledged computer with a keyboard and floppy disk drive, but Nintendo president Hiroshi Yamauchi rejected this and instead decided to go for a cheaper, more conventional cartridge-based game console as he believed that features such as keyboards and disks were intimidating to non-technophiles. A test model was constructed in October 1982 to verify the functionality of the hardware, after which work began on programming tools. Because 65xx CPUs had not been manufactured or sold in Japan up to that time, no cross-development software was available and it had to be produced from scratch. Early Famicom games were written on a system that ran on an NEC PC-8001 computer and LEDs on a grid were used with a digitizer to design graphics as no software design tools for this purpose existed at that time.

The code name for the project was "GameCom", but Masayuki Uemura's wife proposed the name "Famicom", arguing that "In Japan, 'pasokon' is used to mean a personal computer, but it is neither a home or personal computer. Perhaps we could say it is a family computer." Meanwhile, Hiroshi Yamauchi decided that the console should use a red and white theme after seeing a billboard for DX Antenna (a Japanese antenna manufacturer) which used those colors.