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Warner Bros. returned to the record business on March 19, 1958, with the establishment of its own recording division, Warner Bros. Records. By this time, the established Hollywood studios were reeling from multiple challenges to their former dominance—the most notable being the introduction of television in the late 1940s. Legal changes also had a major impact on their business—lawsuits brought by major stars had effectively overthrown the old studio contract system by the late 1940s and, beginning in 1949, anti-trust suits brought by the U.S. government forced the five major studios to divest their cinema chains.

In 1956, Harry Warner and Albert Warner sold their interest in the studio and the board was joined by new members who favored a renewed expansion into the music business—Charles Allen of the investment bank Charles Allen & Company, Serge Semenenko of the First National Bank of Boston and investor David Baird. Semenenko in particular had a strong professional interest in the entertainment business and he began to push Jack Warner on the issue of setting up an 'in-house' record label. With the record business booming – sales had topped US$500 million by 1958 – Semnenko argued that it was foolish for Warner Bros. to make deals with other companies to release its soundtracks when, for less than the cost of one motion picture, they could establish their own label, creating a new income stream that could continue indefinitely and provide an additional means of exploiting and promoting its contract actors.

Another impetus for the label's creation was the music career of Warner Bros. actor Tab Hunter. Although Hunter was signed to an exclusive acting contract with the studio, it did not prevent him from signing a recording contract, which he did with Dot Records, owned at the time by Paramount Pictures. Hunter scored several hits for Dot, including the US No. 1 single, "Young Love" (1957) and, to Warner Bros.' chagrin, reporters were primarily asking about the hit record, rather than Hunter's latest Warner movie. In 1958, the studio signed Hunter as its first artist to its newly formed record division, although his subsequent recordings for the label failed to duplicate his success with Dot.

Warner Bros. agreed to buy Imperial Records in 1956 and, although the deal fell apart, it marked the breaking of a psychological barrier: "If the company was willing to buy another label, why not start its own?" To establish the label, the company hired former Columbia Records president James B. Conkling; its founding directors of A&R were Harris Ashburn, George Avakian, and Bob Prince. Conkling was an able administrator with extensive experience in the industry—he had been instrumental in launching the LP format at Columbia and had played a key role in establishing the National Academy of Recording Arts and Sciences the previous year. However, Conkling had decidedly middle-of-the-road musical tastes (he was married to Donna King of vocal quartet the King Sisters), and was thus rather out of step with emerging trends in the industry, especially the fast-growing market for rock 'n' roll music.

Warner Bros. Records opened for business on March 19, 1958. Its early album releases (1958–1960) were aimed at the upscale end of the mainstream audience, and Warner Bros. took an early (though largely unsuccessful) lead in recording stereo LPs that targeted the new "hi-fi" market. The catalogue in this period