The Shetland Sheepdog resembles a Collie and, up to 1914 in England, was known as the "Shetland Collie", however, the breed comes from the small Shetland Islands where most of the livestock is diminuative, including the Shetland Pony and small Shetland Sheep, the latter bred small because of scarce fodder and lack of space. It is entirely logical that to herd small sheep on a small island, a small sheepdog should be used; thus the Shetland Sheepdog.

The breed is originally from the small, old Border Collie breed which was also behind the root-stock of the Collie. Probably some early native breeds were also crossed in to produce the Sheltie.

In comparatively modern times, many breeds were introduced in an effort to fix type and size, including spaniels and later strong Collie blood. The goal is to produce a miniature Collie in coat, head and general type, but with slightly more bone and the size, charm and character of the Sheltie.

The first club for the breed came into being on the Shetland Islands in 1908. A year later the Scottish club was formed. The English club was formed in 1914 and the youngest club, is of course, the American. Each club appears to have wanted a slightly different type. As a result, type has not been completely standardized but is very close the the wanted ideal.