The Dornier Do-17's development can be traced to a 1933 six-passenger mailplane that was considered unsuited to the needs of Lufthansa because of its cramped fuselage. The first three prototypes might have remained locked up in storage and entirely unknown but for the recommendations and reputation of German pilot Flugkapitan Untucht, a winner of eight international records. He managed to test fly one of the prototypes and suggested that it could be developed into a high-speed bomber. Further work was carried out and led to the Do-17E (bomber) and Do-17F (reconnaissance aircraft), both powered with BMW VIs.

Impressed with the high-speed performance of a sample aircraft (that was secretly lightened and using specially boosted engines) at the International Military Aircraft Competitions in 1937, Yugoslavia decided to acquire its own version and a number of Do-17Ks were built under license. Obvious changes were made in the length of the aircraft nose and they used Gnome-Rhone 14N radials. The overall shape of these airplanes truly resemble flying pencils.

Very small numbers of other aircraft types (S and U) were tested until the appearance of the Do-17Z. These aircraft adopted some very obvious redesign to the crew area by making it deeper and allowing more defensive armament. Do-17Zs usually had Bramo Fafnir 323P engines. Increased window glazing gives these aircraft an appearance more commonly associated with the Ju-88.