Originally named the Chase School of Art, Parsons School of Design was founded in 1896 by American Impressionist painter William Merritt Chase with a focus on the fine arts: painting, drawing, and sculpture. Two years after its founding, the school changed its name to the New York School of Art. In 1907, Frank Alvah Parsons became an administrator at the school and made design an important part of the educational mission. He introduced the first full professional departments in interior design, fashion design, and graphic design. To recognize the growth of the design curriculum, the school was renamed the New York School of Fine and Applied Art in 1909. In honor of Mr. Parsons, who was important in steering the school's development and in shaping arts education through his theories about linking art and industry, the institution became Parsons School of Design in 1941. It became a division of the New School for Social Research in 1970.

The school offered courses in fashion design, then called "costume design," as early as 1904. Frank Alvah Parsons enlarged upon these courses to create a full professional department in 1907. Over the next four decades, its name was changed several times as follows: Costume or Clothes Design (1918), Costume Design and Costume Illustration (1921), Costume Design (1922), Costume Design and Costume Illustration (1923), Costume Design and Costume Construction (1925), Costume Design and Construction (1927), Costume Design, Construction and Illustration (1928), Costume Design and Illustration (1937). In 1954, the department was divided to form the Fashion Design Department and the Fashion Illustration Department. As of 2016, Parsons School of Design's School of Fashion offers AAS, BFA, and MFA degrees.

In the early twentieth century, the school’s fashion curriculum focused on the creation of sketches, which could be sold to manufacturers. Then, in 1915, the students not only sketched but began working with fabric and producing finished garments. In its current incarnation, the School of Fashion places an emphasis on understanding the entirety of the design process from the initial concept to the final product and its marketing. The curriculum seeks to educate students on the fundamentals of good design, as well as to develop essential skills specific to fashion design, such as model drawing and pattern drafting, which are applied to real-life design problems. Students also research the historical purposes and implementations of fashion design, study business practices, and investigate the commercial impact on the profession.

In 1919, to supplement the core group of instructors, the department initiated a program to invite stellar designers to critique student work. By 1954, juniors and seniors were working under the close supervision of special visiting critics to design and create garments. The department’s curriculum was revised in 2001, such that the critic mentorship program was confined to the junior year, while seniors worked independently to produce a thesis collection which exhibited their own individual style.

Notable fashion designers who have attended, although not necessarily graduated from Parsons School of Design include Gilbert Adrian (1923), Claire McCardell (1928), Donald Brooks (1950), Willi Smith (1969), Donna Karan (1969), Anna Sui (1973), Isaac Mizrahi (1982), Marc Jacobs (1984), Tracy Reese (1984), Mark Badgley (1985), James Mischka (1985), Derek Lam (1990), Narciso Rodriguez (1991), Behnaz Sarafpour (1992), Peter Som (1997), Lazaro Hernandez (2002), and Jack McCollough (2002).