Blender was already started in 1994. It was a re-design of some in-house software. It was meant mainly for modeling buildings etc., not so much characters. The company Neogeo Reel made corporate videos for their customers.
In 1995 Toy Story came out and this started a huge interest in animation videos. The company stopped in 1997. At that time they had added a game engine and playstation development kit to blender. Nobody believed in it though. The software was moved to the startup center of the University Eindhoven to keep it alive.
Ton founded Not a Number as a one-person company. He released the software for free (but not open source). He made ports to FreeBSD, Linx, Windows. He showed it at SIGGRAPH. This was during the internet bubble, so he managed to collect 4.5M capital. It grew to 40 people in a matter of weeks. Cash was burnt in 2001 and it went into bankrupcy. Blender was locked in a drawer. Ton did a Free Blender crowdfunding campaign avant la lettre to open source it, and raised 100K in 7 weeks. So Blender became open source under the auspices of the Blender Foundation. A project structure was set up with a community focus.
In 2005-2006, Project Orange did a challenge to bring artists together and produce a CC-BY open movie. This was a vehicle to carry Blender forward, and implement the features to make this possible. The result was Elephants Dream. Not only the product was released, but also the entire production database, storyboards, etc. The model of sharing content and technology at the same time works fantastic.
This model was continued with Big Buck Bunny, which was used to develop hair modeling, various character animation tools, grass, leaves, …
In 2009-2011 Blender 2.5x was developed. This was a big leap, with three full-timers paid to work on it. It was the first time professionals took it seriously. In particular, the non-modal workflow (i.e. the workspace is always up-to-date and not interrupted) was very important.
In 2011, the Blender Network was started to bring professionals together. It allows them to offer their services, to get support and training.
Tears of Steel was a combined animation + live action project.
Project Gooseberry (2013) required 10K people to fund it monthly. It didn’t make it to the end, but two other development milestones happened thanks to it: Blender Cloud, and the Cosmos Laundramat. The Cosmos Laundramat won prizes at SIGGRAPH and really attracted the attention of studios. It added various particle simulators (air, water, …).