Oyo was founded according to tradition by Oranmiyan, grandson of Oduduwa, who left Ile-Ife on a punitive expedition to Benin (where he founded the second Benin dynasty and fathered Eweka I), returned to Yorubaland, and was given the territory of Oyo-Ile (Old Oyo, also called Katunga) on the northern savannah margins. The first Alaafin in firm historical memory is Sango (c.1400), a culture hero deified as the Yoruba god of thunder and patron of the empire's executioners.
Oyo's strategic asset was cavalry. The savannah ecology north of the rainforest tsetse line permitted horse-raising — horses brought through the trans-Saharan trade with the Hausa and Nupe — and the Alaafin's mounted regiments under the Oyo Mesi (council of seven nobles) and the Eso (seventy war-captains) projected power from the Niger to the Atlantic. Between c.1600 and 1750, under Alaafin Obalokun, Alaafin Ojigi and the great Alaafin Abiodun (r. c.1770–1789), Oyo extracted tribute from Dahomey (defeated in 1730), from the Egbado, Ketu, Sabe, Anago and Egba Yoruba sub-groups, and from the Nupe and Borgu marches.
The constitutional check on the Alaafin was extraordinary: the Bashorun, head of the Oyo Mesi, could present the empty calabash (igba opon) to a king deemed unfit, and the Alaafin was then required to commit ritual suicide. This check was used — at least three Alaafins were so removed in the 18th century — and abused: the Bashorun Gaha (c.1750–1774) effectively ruled the empire through a string of puppet Alaafins until Abiodun overthrew him.
The empire collapsed in three blows. The Owu War (1817–1825) destroyed Owu and triggered mass refugee movements; Ilorin, an Oyo provincial capital, was seized by the Fulani warrior Afonja and his ally Mallam Alimi in 1817 and incorporated into the Sokoto Caliphate by 1824; and the catastrophic defeat of Alaafin Oluewu at the Battle of Eleduwe (c.1836) by the Fulani of Ilorin allied with the Borgu broke Oyo's military spine. Oyo-Ile (Katunga) was sacked and permanently abandoned in 1837. The Alaafin's court fled south and refounded a much-diminished New Oyo (Ago d'Oyo, modern Oyo town) under Alaafin Atiba in 1837.
The Yoruba diaspora from this collapse refounded civilisation southward — Ibadan (a war-camp founded 1829), Abeokuta (Egba refuge, 1830), and the swelling of Lagos as a Saro and slave-trade port — and the resulting century of Yoruba wars (Ijaye War, Kiriji War, Owu War) is the demographic origin of modern South-West Nigeria.