Ouzo has its roots in tsipouro, which is said to have been the pet project of a group of 14th century monks living in a monastery on Mount Athos. One version of it was flavored with anise. This version eventually came to be called ouzo.

Modern ouzo distillation largely took off in the beginning of the 19th century following Greek independence, with production centered on the island of Lesbos, which claims to be the originator of the drink and remains a major producer. When absinthe fell into disfavor in the early 20th century, ouzo was one of the products whose popularity rose to fill the gap; it was once called “a substitute for absinthe without the wormwood”. In 1932, ouzo producers developed a method of distillation using copper stills that is now the standard method of production.

Ouzo is traditionally mixed with water, becoming cloudy white, sometimes with a faint blue tinge, and served with ice cubes in a small glass. Ouzo can also be drunk straight from a shot glass.

Ouzo is traditionally served with a small plate of a variety of appetizers called mezes, usually small fresh fish, fries, olives and feta cheese. Ouzo can be described to have a similar taste to absinthe which is liquorice-like, but smoother.

On October 25, 2006, Greece won the right to label ouzo as an exclusively Greek product. The European Union now recognizes ouzo, as well as the Greek drinks tsipouro and tsikoudia, as products with a Protected Designation of Origin, which prohibits European makers other than Greece and Cyprus from using the name.