The company had its start when Max Fleischer invented the rotoscope, which allowed for extremely lifelike animation. Using this device, the Fleischer brothers got a contract with Bray Studio in 1919 to produce their own series called Out of the Inkwell, which featured their first characters, the as yet unnamed Koko the Clown, and Fitz the Dog, who would evolve into Bimbo in 1930. Out of the Inkwell became a very successful series. As the Bray theatrical operation started to diminish, the brothers began their own studio in 1921. Dave served as the director and supervised the studio's production, while Max served as the producer. The company was known as Out of the Inkwell Films, Incorporated, and later became Fleischer Studios in January, 1929.

Throughout the 1920s, Fleischer was one of the top producers of animation, with clever humor and numerous innovations including the Rotograph, an early photographic process for compositing animation with live action backgrounds. Other innovations included Ko-Ko Song Car-Tunes, sing-along shorts (featuring the famous "bouncing ball"), which were a sort of precursor to Karaoke. From May 1924 to September 1926, the studio used Dr. Lee De Forest's Phonofilm sound-on-film process to produce 19 early cartoons with synchronized sound tracks, including Come Take a Trip in My Airship, Darling Nelly Gray, Has Anybody Here Seen Kelly and By the Light of the Silvery Moon. The Ko-Ko Song Car-Tunes series ended in 1927, but returned as the Screen Songs series from 1929 to 1938.