In 1951, sensing the likely end of L-19 production, Cessna President Dwane Wallace searched for another niche market for military sales. The US Army had shown an interest in the just-developing helicopter market, and the commercial market for helicopters showed every sign of a vibrant future. Wallace knew he did not have the time to create an in-house technical base if he was to be able to gain an early foothold in the fledgling market and successfully compete. He found his answer right in Wichita—the Seibel Helicopter Company—a company that had accomplished what Wallace recognized as a significant achievement. With a budget of only $125,000 and a total staff of four, Charles M. Seibel had designed, built, and acquired CAA certification for a new helicopter—the S-4B. By doing so, Seibel became only the fifth American company with an CAA-certified helicopter. In fact, the US Army purchased two of the Seibel helicopters for evaluation, designating them YH-24s. They did, however, show any interest in further orders.

Charles Seibel was a pioneer in helicopter aviation, having earned a Master's degree in Aeronautical Engineering in 1943 from California Institute of Technology after completing his thesis on helicopter design and aerodynamics. In 1947, Seibel designed and built his first helicopter—a single-seat, 800-pound gross weight aircraft powered by a 65-horsepower Franklin engine. This innovative aircraft was capable of cruising at 70 MPH, with a top speed of 90 MPH and a service ceiling of 12,000 feet. This was the first helicopter to incorporate the patented Seibel Control System. At the time, Seibel was unable to market his design and went to work for Bell Helicopter as an engineer on that company's first helicopter designs. In 1950, Seibel formed his own company and designed the S-4B.

Once he saw what Seibel had accomplished, Wallace wasted no time making an offer to purchase Seibel Helicopter—an offer that was quickly accepted by the cash-strapped start-up. In March 1952, Seibel Helicopter Company became the Cessna Helicopter Division. Cessna planned to combine Wallace's leadership and Seibel's technical expertise to take Seibel's design from its rudimentary prototype stage to full-scale production of a sophisticated, and commercially viable, aircraft. Wallace infused the new division with Cessna personnel and selected a general manager from within the Cessna management ranks. He appointed Charles Seibel as the Helicopter Chief Engineer to capitalize on his engineering know-how.

To achieve the commercial success Wallace envisioned for the new product, the Helicopter Division set out to solve what they considered the fundamental shortcomings of the existing helicopters. Cessna wanted to design a helicopter that could hover both in and out of ground effect at much higher altitudes than other helicopters of the early 1950s, without sacrificing cruising speed. To meet these performance demands, they selected a supercharged engine, the Continental FSO-470—and engine able to generate 260-horsepower at altitudes up to 10,000 feet. Cessna also needed a rotor with excellent lifting ability and decided to incorporate the new Prewitt all-steel rotor. Finally, the designers greatly improved the aerodynamics of the fuselage itself. They had settled on the new design's basic configuration by mid-1952, giving it the official nomenclature as Cessna Helicopter #1, or simply the CH-1.