First created by George Lucas as an addition to his special effects studio Lucasfilm, Industrial Light and Magic has quickly grown into the most well known name in special effects. When Empire Strikes Back was being made a team of CGI animators created a sequence for Lucas of a fleet of x-wings flying in formation. Although the scene was cut from the final film, it showed George Lucas that something important was happening with computer animation and the effect it would have on the film industry, and special effects.

In response he decide to recruit CGI artists in order to be able to produce and use realistic looking CGIs in his films. Because of the success of those computer graphics artists, a special division was created within Lucasfilm, a division that would take care of special effects for motion pictures by creating them on the computer. At the same time ILM was doing special effects as well, but the traditional way, with miniatures and stop-motion filming. For different reasons ILM didn't want to delve too deeply into the world of computer graphics, and at one point George Lucas decided he wanted Lucasfilm to narrow down and focus, effectively pulling the reins in on the team of CGI specialists. Those computer animators decided in 1986 to form their own company, and after coming to an agreement with George Lucas broke off and formed Pixar. Industrial Light and Magic was left with two CGI artists so that they would still be capable of creating computer animations for special effects if they chose. After a while though ILM began to evolve and more and more people were hired to work with computer graphics, until the company was mainly comprised of CGI artists. The success of ILM with these CGI artists has been phenomenal, with their crowning achievement being the dinosaurs for Steven Spielberg's Jurassic Park. Originally the dinosaurs were supposed to be models and miniatures filmed with the stop motion technique and added into the scenes with blue screening. However a team of ILM artists, working on their own time, came up with such realistic looking dinosaurs that most of the models of dinosaurs were dropped and substituted instead with computer rendered ones, including the large T-Rex.

Now ILM handles most of the special effects for movies, including putting Tom Hanks into old film footage in Forrest Gump, and bringing to life a huge dragon in Dragonheart. All of the computer graphics and animation for Star Wars Episode One: The Phantom Menace were also handled by ILM including the pod-racing scene which is a monument to computer graphics technology.