The PBY was originally designed to be a patrol bomber, an aircraft with a long operational range intended to locate and attack enemy transport ships at sea in order to compromise enemy supply lines. With a mind to a potential conflict in the Pacific Ocean, where troops would require resupply over great distances, the U.S. Navy in the 1930s invested millions of dollars in developing long-range flying boats for this purpose. Flying boats had the advantage of not requiring runways, in effect having the entire ocean available. Several different flying boats were adopted by the Navy, but the PBY was the most widely used and produced.
Although slow and ungainly, PBYs distinguished themselves in World War II as exceptionally reliable. Allied armed forces used them successfully in a wide variety of roles that the aircraft was never intended for. They are remembered by many veterans of the war for their role in rescuing downed airmen, in which they saved the lives of thousands of aircrew downed over water. PBY airmen called their aircraft the "cat" on combat missions and "Dumbo" in air-sea rescue service.
As American dominance in the Pacific Ocean began to face competition from Japan in the 1930s, the U.S. Navy contracted Consolidated Aircraft and Douglas Aircraft Corporation in October 1933 to build competing prototypes for a patrol flying boat. Naval doctrine of the 1930s and 1940s used flying boats in a wide variety of roles that today are handled by multiple special-purpose aircraft. The U.S. Navy had adopted the Consolidated P2Y and Martin P3M models for this role in 1931, but both aircraft proved to be underpowered and hampered by short ranges and low maximum payloads.
Consolidated and Douglas both delivered single prototypes of their designs, the XP3Y-1 and XP3D-1, respectively. Consolidated's XP3Y-1 was an evolution of the XPY-1 design that had originally competed unsuccessfully for the P3M contract two years earlier and of the XP2Y design that the Navy had authorized for a limited production run. Although the Douglas aircraft was a good design, the Navy opted for Consolidated's because the projected cost was only $90,000 per aircraft.
Consolidated's XP3Y-1 design (company Model 28) was revolutionary in a number of ways. The aircraft had a parasol wing with internal bracing that allowed the wing to be a virtual cantilever, except for two small streamlined struts on each side. Stabilizing floats, retractable in flight to form streamlined wingtips, were another aerodynamic innovation, a feature licensed from the Saunders-Roe company. The two-step hull design was similar to that of the P2Y, but the Model 28 had a cantilever cruciform tail unit instead of a strut-braced twin tail. Cleaner aerodynamics gave the Model 28 better performance than earlier designs.
The prototype was powered by two 825 hp (615 kW) Pratt & Whitney R-1830-54 Twin Wasp engines mounted on the wing’s leading edges. Armament comprised four 0.30 in (7.62 mm) Browning machine guns and up to 2,000 lb (907 kg) of bombs.
The XP3Y-1 had its maiden flight on 28 March 1935, after which it was transferred to the US Navy for service trials. The XP3Y-1 soon proved to have significant performance improvements over current patrol flying boats. The Navy requested further development in order to bring the aircraft into the category of patrol bomber, and in October 1935, the prototype was returned to Consolidated for further work, including installation of 900 hp (671 kW) R-1830-64 engines. For the redesignated XPBY-1, Consolidated introduced redesigned vertical tail surfaces. The XPBY-1 had its maiden flight on 19 May 1936, during which a record non-stop distance flight of 3,443 miles (5,541 km) was achieved.
The XPBY-1 was delivered to VP-11F in October 1936. The second squadron to be equipped was VP-12, which received the first of its aircraft in early 1937. The second production order was placed on 25 July 1936. Over the next three years, the PBY design was gradually developed further and successive models introduced.