In the early 1930's the German Lufthansa company was rapidly expanding, and its managers desired to buy only state of the art planes. Many German aircraft conceived initially for the Lufthansa would later see service with the still secret Luftwaffe. Some were truly excellent designs, like the Focke-Wulf Fw 200 Condor long-range passenger / mail airplane, who went on to become the only long-range, four-engine German bomber of WW2. In 1933, the Dornier company decided to enter the competition for a new six-passenger / mail aircraft. This would later become the Dornier Do-17 light bomber.

Lufthansa had one major requirement : any plane that entered the competition had to be really fast. To meet this demand, all three prototypes were built with a very small cross-section, in order to reduce drag as much as possible. By 1935, the three prototypes begun their test flights, but the passenger space was so cramped and uncomfortable that it was clear the plane had no future as an airliner.

Luck, however, was on Dornier's side. At that moment the RLM ( the German Air Ministry ) was looking for a plane capable of illustrating its schnellbomber concept ( a bomber faster than any existing fighters ). A former Dornier pilot, now a Flugkapitan in the young Luftwaffe, flew one of the prototypes and reported that although better stability was needed, the Do-17 was a serious candidate for this part. The twin-rudder was redesigned and seven more prototypes were built before the aircraft was finally accepted into service, as the first schnellbomber of the Luftwaffe. By this stage the Do-17's had already acquired the famous nickname of "flying pencil" because of its small cross-section. RLM's idea of a schnellbomber seemed to be paying off when the Do-17M prototype present at the Zurich International Military Aircraft Competition in 1937 probed capable of outrunning any fighter present there.