The Derwent was the second jet engine design to be put into production by Rolls-Royce. Essentially an improved version of the Rolls-Royce Welland, itself a renamed version of Frank Whittle's Power Jets W.2B, Rolls inherited the design from Rover when they took over their jet engine development in 1943. The performance over the original W.2B design was somewhat improved, reliability dramatically, making the Derwent the chosen engine for the Gloster Meteor and many other post-WWII British jet designs.

When Rover was selected for production of Whittle's designs in 1941 they set up their main jet factory at Barnoldswick, staffed primarily by various Power Jets personnel. Rover felt their own engineers were better at everything, and also set up a parallel effort at Waterloo Mill, Clitheroe. Here Adrian Lombard attempted to develop the W.2 into a production quality design, angering Whittle who was left out of the team. After a short period Lombard decided to dispense with Whittle's "reverse flow" design, and instead lay out the engine in a "straight-through" flow with the hot gasses exiting directly onto the turbine instead of being piped forward as in Whittle's version. He may have been inspired by Frank Halford 's layout of the Halford H.1 , which was being built at about the same time. This layout made the engine somewhat longer and required a redesign of the nacelles on the Meteor, but also made the gas flow simpler and thereby improved reliability. While work at Barnoldswick continued on what was now known as the W.2B/23, Lombard's new design became the W.2B/26. This change angered Whittle, and was one of the reasons for Rover's eventual adbandonment of jet engine development.

By 1941 it was obvious to all that the arrangement was not working; Whittle was constantly frustrated by Rover's inability to deliver production-quality parts for a test engine, and became increasingly vocal about his complaints. Likewise Rover was losing interest in the project after the delays and constant harrasment from Power Jets. Earlier, in 1940, Stanley Hooker of Rolls-Royce had met with Whittle, and later introduced him to Rolls' CEO, Ernest Hives. Rolls had a fully developed supercharger division, which Hooker directed, which was naturally suited to jet engine work. Hives agreed to supply key parts to help the project along. Eventually Spencer Wilkes of Rover met with Hives and Hooker, and decided to trade the jet factory at Barnoldswick for Rolls' tank engine factory in Nottingham. A handshake sealed the deal, turning Rolls-Royce into the powerhouse it remains to this day.

Problems were soon ironed out, and the original /23 design was flight quality by late 1943. This gave the team some breathing room, so they redesigned the inlets for increased air flow, and thus thrust. Adding improved fuel and oil systems, production of the newly-named Derwent Mk.I started at 2,000 lbf. Mk.II, III and IV's followed, peaking at 2,450lbs-thrust. The Derwent was the primary engine of all the early Meteors with the exception of the small number of Welland-equipped models which were quickly removed from service. The Mk.II was also modified with an extra turbine stage driving a gearbox and, eventually, a five-bladed propeller, forming the first production turboprop engine, the Rolls-Royce Trent (RB.50).

The basic Derwent design was also used to produce a larger two-spool 5,000lbs-thrust engine known as the Rolls-Royce Nene. This found little use by the British, being used only in the Supermarine Attacker but several Nenes (and Derwents) were sold to the Soviet Union, causing a major political row, as it was the most powerful production-turbojet in the world at the time. The (un-licensed) Nene would go on to power the MiG-15, and boasted much better performance than the US designs it faced. Development of the Nene continued in a scaled-down version specifically for use on the Meteor, and to avoid the stigma of the earlier design, this was named the Derwent Mk.V. The Mk.V was also going to be used on the Canadian Avro Jetliner, but this was never put into production.