Communist Party of Indonesia (Partai Komunis Indonesia), was founded in 1920 in Semarang, as the successor of the Indische Sociaal-Democratische Vereeniging (ISDV, Indian Social Democratic Association). PKI was initially called Perserikatan Komunis di Hindia (Communist Association of the Indies).

PKI was the first Asian communist party and became a section of the Communist International. The party was outlawed by the Dutch East Indies government because of its activities during uprisings in Banten and Western Sumatra, and the PKI had to go underground in 1927.

PKI was reestablished after the Japanese capitulation in 1945 and it actively took part in the struggle for national independence. The leftist section of Partai Sosialis Indonesia (Socialist Party of Indonesia) merged with PKI in 1948.

After supporting the peasant revolt of Madiun in 1948, the PKI was suppressed by the government of the Republik Indonesia for a short time. In the 1950s the PKI committed itself to a nationalist position under the leadership of Dipa Nusantara Aidit , supporting the anti-colonialist and anti-western policy of the Indonesian president Sukarno.

With growing popular support and a membership of about 3 million by 1965, the PKI was the strongest communist party outside the Soviet Union and China. The growing influence of the PKI bothered the U.S., and Sukarno's constant balancing act between the PKI, the military, nationalist factions, and Islamic groups was threatened by the PKI's rise. The CIA reputedly worked out a plan together with the Indonesian military to stop the party.

On the night of September 30, 1965, six of Indonesia's top generals were killed and thrown down a well, and the PKI was blamed for instigating a supposed coup attempt. (The events and supposed coup plotters of that night are referred to as "G30S," an abbreviation of "Gerakan 30 September ," or "the September 30th Movement." Concrete evidence linking the PKI to the generals' assassinations is limited, leading to speculation that Suharto organized the events and scapegoated the communists.) The PKI was severely repressed subsequently, as General Suharto forced Sukarno aside and consolidated influence over the military and the country. Over a million Indonesians accused of being members or supporters of PKI were killed in riots and witch hunts. Lists of suspected communists were supposedly supplied to the Indonesian military by the CIA. In 1966, the party and all communist writings were formally banned.

Some of these tumultuous events were fictionalized in the popular novel and film The Year of Living Dangerously (1982).

Former PKI members are still (in 2004) blacklisted from many occupations including government jobs. During his presidency Gus Dur floated the idea of permitting open discussion of the communist ideology, but this provoked a public outcry and accelerated the move toward his impeachment.