The Johnson-O’Malley Act started its journey when W. Hiram Johnson and Thomas P. O’Malley sponsored a bill in the House and Senate, which when passed on April 16, 1934, became known as the Johnson-O’Malley Act. While the Johnson-O’Malley Act was identified primarily with education, the Act itself designated the use of the funding for such purposes as education, medical attention, agricultural assistance and social welfare, including relief of distress. The expenditure of some funds for the welfare and agricultural extension programs were justified under the Johnson-O’Malley authority of the Bureau of Indian Affairs, but the funding continued to be emphasized in the area of education.

Until August 12, 1958, the Johnson-O’Malley Program was a basic Federal Aid program specifically designed to assist public school districts to educate Native American children from reservations and Native American owned, tax-exempt land areas. In 1958, Public Law 81-874, administered through the Department of Health, Education, and Welfare, was amended to include assistance for education of Native American children. This broader based program met most of the basic financial needs of eligible school districts. Subsequently, the Johnson-O’Malley Program became a supplemental aid program geared to offset the financial deficit of extraordinary and exceptional Native American education needs.

The Johnson-O’Malley funds were made available to states based on separate plans negotiated between the Bureau of Indian Affairs and the respective states of tribal corporations for the purpose of supplemental federal assistance for education of Native American children in public schools. The states or tribal corporations administered these funds to local school districts.

In 1975, the passage of Public Law 93-638, The Indian Self-Determination and Education Assistance Act, made it easier for tribal entities to contract for the program. Any state, school district, tribal organization, or Indian Corporation were eligible to apply for a contract. However, the regulations governing Johnson-O’Malley programs were written to insure the maximum participation of Native American parents in the development of programs for eligible students. The most significant change since 1975 has been the definition of an eligible student. Public Law 99-228 allowed a student to be eligible if they were an enrolled member of a federally recognized tribe, regardless of blood degree. Then, on December 31, 2018, President Trump signed into law Senate Bill 943, the Johnson-O’Malley Supplemental Indian Education Program Modernization Act. The Act, now referred to as Public Law 115-404, will seek to obtain a complete update of the student count for eligible Native American students while increasing participation around the country from schools and tribes. It initiates conversations with the Department of the Interior and BIE regarding the modernization of rules and regulations for Johnson-O’Malley Programs. As well as reinforce the recognition of tribal sovereignty and the respect of federal treaty rights.

The purpose of the program is to provide financial assistance to rural districts to assist them in meeting their state's definition of adequate yearly progress (AYP). Applicants do not compete but rather are entitled to funds if they meet basic eligibility requirements. Eligibility is restricted by statute.