Some authors, such as Sanjeev Kapoor, interpret Vedic literature to relate to a material that is understood as a kind of paneer. A type of cheese is "perhaps referred to" in Rigveda 6.48.18, according to Arthur Berriedale Keith. However, according to Otto Schrader, the Rigveda merely refers to "a skin of sour milk, not cheese in the proper sense." Acidulation of milk was taboo in ancient Indo-Aryan culture, according to K. T. Achaya, who points out that the legends about Krishna mention milk, butter, ghee, and dahi (yoghurt), but not sour milk cheese.

The indigenous cheese, like other dairy products like ghee and lassi, is considered to be the result of the subcontinent's long heritage of cattle-rearing. According to MarigoldMaison, the modern version of the cheese-making method may be traced back to the Indus Valley Civilization, which refers to a procedure of curdling milk with a specific variety of green leaves, berries, barks, and yoghurt.

The Aryan invasion, however, put an end to this practise since they believed cows were sacrosanct and that 'curdling' their milk, which was a cherished dietary element in Ayurveda, was considered prohibited.

Paneer is often credited to Persian and Afghan monarchs who introduced it to North India in the 16th century, where it was produced with either goat or sheep rennet. According to MarigoldMaison, the phrase 'Paneer' comes from the Turkish and Persian word 'peynir,' which simply means 'cheese.'

Paneer is made today using a Portuguese process of 'breaking' milk with an acid such as lemon juice that was developed in the 17th century.