Mego was founded in 1954 by D. David Abrams and Madeline Abrams. The company thrived in the 1950s and early 1960s as an importer of dime store toys,until the rising cost of newspaper advertising forced Mego to change its business model. In 1971, the Abrams' son Martin, a recent business school graduate, was named company president.

Under Martin Abrams' direction, the company shifted its production to action figures with interchangeable bodies. Generic bodies could be mass-produced and different figures created by interposing different heads and costumes on them.Mego constructed their figures primarily in an 8-inch (200 mm) scale. Sixty percent of their products were manufactured in Hong Kong.

In 1972 Mego secured the licenses to create toys for both National Periodical Publications (DC Comics) and Marvel Comics. The popularity of this line of 8" figures — dubbed "The World's Greatest Super Heroes" — created the standard action figure scale for the 1970s.

Mego began to purchase the license rights of motion pictures, television programs, and comic books, eventually producing action figure lines for Planet of the Apes, Star Trek, and the Wizard of Oz. Mego also obtained licenses from Edgar Rice Burroughs for his creations, such as Tarzan.

Beginning in 1974 Mego released the Planet of the Apes action figures, the first such toys sold as film tie-ins. 1974 also saw the release of figures from Star Trek: The Original Series, which was steadily gaining fandom in syndication. The Planet of the Apes and Star Trek figures proved popular and inspired the rise of action figure series based on popular culture franchises.

During this period, Mego was known for the lavish parties the company threw at the annual New York American International Toy Fair. In 1975, Mego launched its Wizard of Oz film dolls with a gala whose special guests were every surviving member of the film's main cast. Mego's party at the Waldorf-Astoria with Sonny and Cher introducing their dolls drew a thousand people.Both dolls were formally unveiled on The Mike Douglas Show.The Cher doll was the number-1-selling doll in 1976,helping to make Mego the sixth-ranked American toy manufacturer, based on retail sales.

In 1976, Martin Abrams hashed out a deal with the Japanese toy manufacturer Takara to bring their popular lucite 3" fully articulated Microman figures to the United States under the name "Micronauts." David Abrams, meanwhile, rejected a deal to license toys for the upcoming motion picture Star Wars, reasoning that Mego would go bankrupt if they made toys of every "flash-in-the-pan" sci-fi B movie that came along. This decision seemed of little consequence to Mego at first, because the Micronauts figures initially sold well, earning the company more than $30 million at their peak.On the other hand, the Star Wars film was extremely popular and competitor Kenner Products sold substantial numbers of Star Wars action figures.

Following Star Wars' huge cultural impact, and Kenner's great success with its action figure line, Mego negotiated licenses for the manufacturing rights to a host of science fiction motion pictures and television shows, including Moonraker, Buck Rogers in the 25th Century, The Black Hole, and Star Trek: The Motion Picture. Although these lines of Mego figures were of much higher quality than Kenner's 12" Star Warsfigures, none were as successful.The widespread success of Kenner's Star Wars 3-3/4" toy line soon made the newer, smaller size the industry standard, shifting sales away from the 8" standard popularized by Mego.

In the late 1970s, Mego was earning about $100 million in sales.Around this time, Mego began shifting their focus toward electronic toys like the 2-XL toy robot and the Fabulous Fred hand-held game player, but sales were not commemsurate with the company's investment, and Mego went deeply into debt.In the fiscal years 1980 and 1981, Mego reported combined losses of $40 million.In fiscal year 1982, the company reported losses of between $18 and $20 million.

In February 1982 the remaining staff was let go and the Mego offices were closed. On June 14, 1982, Mego filed for Chapter 11 bankruptcy; the company officially went under in 1983.

In 1986, Martin Abrams co-founded Abrams Gentile Entertainment (AGE),in order to retain and manage Mego’s licensing contracts, rights and deals. In October 1995 AGE attempted to reclaim the Mego trademark.In March 2002, they abandoned the effort.In early 2009, Martin Abrams announced that AGE had reclaimed the rights to the name Mego;no specific future plans for Mego products have been disclosed to date.