The American Institute of Bangladesh Studies (AIBS) was established in 1989. It was a result of an initiative undertaken by Professor Craig Baxter of Juniata College, and joined by faculty members from Columbia University, University of Pennsylvania, Pennsylvania State University, University of Chicago, Glassboro State College (now Rowan University), and University of Wisconsin at Oshkosh.

It 1989, AIBS signed an agreement with the Ministry of Foreign Affairs (MFA), Government of Bangladesh (GOB), for a financial contribution to fund fellowships for U.S scholars to go to Bangladesh for research. AIBS established senior and junior fellowships. The first fellowship award was made in 1990. AIBS fellowship awards are made in non-convertible Bangladeshi Taka.

In 1991-92 AIBS initiated contact with the United States Information Agency (USIA) to obtain additional funding for educational exchanges between the United States and Bangladesh. AIBS received funding from USIA to establish four additional programs. These included the Extension Bangladesh Lecture Series, the Research and Development Seminars, the Undergraduate Research Fellowship Grant, and the Faculty Support Funds.

In 1993, AIBS became a member of the Council of American Overseas Research Centers (CAORC) and since then has received funds from CAORC to continue these programs. In 2005, AIBS was invited by the U.S. Department of State to submit an application for funding to start a Bangla Language Institute in Dhaka. This was done, the application was accepted, and the first group of students to benefit from the Institute spent summer 2006 in Dhaka, hosted by the Independant University of Bangladesh.