In 1935, the Czechoslovak tank manufacturer CDK was looking for a replacement for the LT-35 tank they were jointly producing with Skoda Works. The LT-35 was complex and had shortcomings, and ČKD felt there would be orders both from the expanding Czechoslovak army and for export.

ČKD decided to use a suspension with four large wheels for their new tank. It resembled the Christie suspension outwardly, but was actually a conventional leaf spring unit. The resulting vehicle was reliable, and an export success: 50 were exported to Iran, 24 each to Peru and Switserland. Latvia also ordered some. The British Royal Armoured Corps (RAC) had one trial model delivered on March 23, 1939 to Gunnery School at Lulworth. A report stated, the "(bow) gunner could not sit back comfortably as the wireless set was in the way of his left shoulder." The report also states that the due to the judder whilst the vehicle was in motion, it was impossible to lay the gun on the move, and that even at 5 mph accuracy was poor. As a result, the RAC did not purchase the Panzer 38(t) and the trial model was returned.

On July 1, 1938, Czechoslovakia ordered 150 of the TNHPS model, although none had entered service by the time of the German occupation. After the German takeover, Germany ordered continued production of the model, as it was considered an excellent tank, especially compared to the Panzer I and Panzer II tanks that were the Panzerwaffe's main tanks. It was first introduced into German service under the name LTM 38; this was changed on 16 January 1940 to Panzerkampfwagen 38(t). Production of tanks for Germany continued into 1942, and amounted to more than 1,400 examples. Examples were also sold to a number of German allies, including Hungary (102), Slovakia (69), Romania (50), and Bulgaria (10). In German service the 38(t) was used as a substitute for the Panzer III.

The main advantages of the Panzer 38(t), compared to other tanks of the day, were a very high reliability and sustained mobility. In one documented case a regiment was supplied with tanks driven straight from the factory in 2.5 days instead of the anticipated week, without any mechanical breakdowns (in: History of the 25 Panzer Regiment of the 7 Panzerdivision). In the opinion of the crews, the drive components of the 38(t), engine, gear, steering, suspension, wheels and tracks were perfectly in tune with each other. The 38(t) was also considered to be very easy to maintain and repair.

The Panzer 38(t) was manufactured up to the middle of World War II. The small turret was incapable of taking a weapon big enough to destroy late-war tanks, and manufacturing of the tank version ceased. However, the chassis continued in production as the basis for several turretless assault guns, anti-tank guns and anti-aircraft guns. A Swedish variant, the Sav m/43 remained in use until 1970.

The Aufklärungspanzer 38(t) - Sd.Kfz.141/1 was a reconnaissance conversion fitted with a "Hangelafette" turret (20 mm KwK 38 L/55 gun and MG42 - used in armored cars) or armed with 75 mm KwK 37 L/24 (and MG42) gun mounted in the modified superstructure. Only 50 to 70 Aufklarungspanzer 38(t) with 20 mm gun were built from late 1943 to early 1944 and only 2 Aufklarungspanzer 38(t) with 75 mm gun were built in 1944.

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