The Babylon Project was launched by Earth Alliance President Luis Santiago in 2249 following the conclusion of the Earth-Minbari War. The project's goal was to create an environment in which Humans and Aliens could resolve their differences peacefully and, above-all, avoid another war based on a misunderstanding. Babylon 5 came on line in 2256 and turned fully operational in 2257.

The station is located in an area of neutral space, The Euphrates Sector, relatively central to the five major powers (Earth Alliance, Minbari Federation, Cantauri Republic, Narn Regime and Vorlon Empire). When the Narn-Centauri War broke out in 2259, it was the beginning of the end for Babylon 5's peace-keeping mission. However, in 2260 the station assumed a greater function as the last best hope for victory in the war against the Shadows.