Wayang is a generic term denoting traditional theatre in Indonesia. There is no evidence that wayang existed before the first century CE, after Hinduism and Buddhism were brought to Southeast Asia. This leads to the hypothesis that the art was imported from either India or China, both of which have a long tradition of shadow puppetry and theatre in general. Jivan Pani has argued that wayang developed from two arts of Odisha in Eastern India, the Ravana Chhaya puppet theatre and the Chhau dance. However, there very well may have been indigenous storytelling traditions that had a profound impact on the development of the traditional puppet theatre.

The first record of a wayang performance is from an inscription dated 930 CE which says si Galigi mawayang, or "Sir Galigi played wayang". From that time till today it seems certain features of traditional puppet theatre have remained. Galigi was an itinerant performer who was requested to perform for a special royal occasion. At that event he performed a story about the hero Bhima from the Mahabharata. The kakawin Arjunawiwaha composed by Mpu Kanwa, the poet of Airlangga's court of Kahuripan kingdom, in 1035 CE describes santoṣâhĕlĕtan kĕlir sira sakêng sang hyang Jagatkāraṇa, which means "He is steadfast and just a wayang screen away from the 'Mover of the World'." Kelir is Javanese word for wayang screen, the verse eloquently comparing actual life to a wayang performance where the almighty Jagatkāraṇa (the mover of the world) as the ultimate dalang (puppet master) is just a thin screen away from us mortals. This reference to wayang as shadow plays suggested that wayang performance is already familiar in Airlangga's court and wayang tradition has been established in Java, perhaps earlier. An inscription from this period also mentioned some occupations as awayang and aringgit.

Wayang kulit is a unique form of theatre employing light and shadow. The puppets are crafted from buffalo hide and mounted on bamboo sticks. When held up behind a piece of white cloth, with an electric bulb or an oil lamp as the light source, shadows are cast on the screen. The plays are typically based on romantic tales, especially adaptations of the classic Indian epics, the Mahabharata and the Ramayana. Some of the plays are also based on local happening or other local secular stories. It is up to the conductor or dalang or master puppeteer to decide his direction.

The dalang is the genius behind the entire performance. It is he who sits behind the screen and narrates the story. With a traditional orchestra in the background to provide a resonant melody and its conventional rhythm, the dalang modulates his voice to create suspense thus heightening the drama. Invariably, the play climaxes with the triumph of good over evil.

The figures of the wayang are also present in the paintings of that time, for example, the roof murals of the courtroom in Klungkung, Bali. They are still present in traditional Balinese painting today. The figures are painted, flat woodcarvings (a maximum of 5 to 15 mm thick—barely half an inch) with movable arms. The head is solidly attached to the body. Wayang klitik can be used to perform puppet plays either during the day or at night. This type of wayang is relatively rare.

Wayang today is both the most ancient and most popular form of puppet theatre in the world. Hundreds of people will stay up all night long to watch the superstar performers, dalang, who command extravagant fees and are international celebrities. Some of the most famous dalang in recent history are Ki Nartosabdho, Ki Anom Suroto, Ki Asep Sunandar Sunarya, Ki Sugino, and Ki Manteb Sudarsono.