Established in 1987 by Eddie Piller (with Gilles Peterson on board as additional A&R until around 1990). Dean Rudland also managed the label in the early years. It was set up as a tongue-in-cheek response to the 'Acid House' explosion. The label, armed only with a music policy that stated 'no House music!', rapidly began producing records that, although they often contained very little 'Jazz' and even less 'Acid', became the ultimate symbol of 1990s chic. This becoming evident when the term 'Acid Jazz', rather than simply referring to this record label, began being applied, both by the press and on the street, to any record that had an 'Acid Jazz' feel to it.
Gilles Peterson describes a time when he DJ'd at Dingwalls Club in Camden, north west London. He said:-
"We put on this old 7-inch by Mickey and the Soul Generation which was a rare groove record with a mad rock guitar intro and no beat. I started vari-speeding it so it sounded all warped. Chris Bangs got on the microphone and said, 'If that was acid house, this is acid jazz'. That's how acid jazz started, just a joke!"
Gilles Peterson teamed up with Eddie Piller to form the record label Acid Jazz shortly afterwards. Eddie Piller had previously managed the James Taylor Quartet, and the label's first signing was the band Galliano featuring lead singer Rob Gallagher.