The games were originally meant to be loaded from tape, but it changed to using ROM, but the loading didn't change so the data had to be loaded from ROM to RAM before it could be used, thereby eating up memory and making the games slower than necessary.

The system was developed by Epyx as the "Handy" and completed in 1987, at which point Atari bought the rights to it. Atari changed the internal speaker and removed the thumb-stick on the control pad before releasing it as the Lynx two years later, initially retailing in the US at USD $189.95. The two creators of the system, RJ Mical and Dave Needle, were also members of the Amiga design team and much to the frustration of Atari, the Amiga was used as the software development platform.

In 1991, Atari relaunched the Lynx with new packaging, slightly improved hardware, and a new sleek look. The new system (referred within Atari as the "Lynx II") featured rubber hand grips and a clearer backlit colour screen with a power save option. It also replaced the monaural headphone jack of the original Lynx with one wired for stereo.

Though technologically superior to the Game Boy, Nintendo's marketing muscle, domination of 3rd party developers, and quality first party game releases (particularly Tetris) meant the Lynx was soon marginalized. The Lynx also suffered from needing more batteries (six versus four in the original Game Boy) which managed to run down much faster. The more powerful CPU of the Lynx, plus its backlit screen, would drain a set of six AA batteries in only four hours (five to six hours in the Lynx II).

The Lynx was also physically larger than it needed to be; Atari had followed the advice of focus groups who wanted a bigger unit because that gave them "more" for their money (much of the inside of the Lynx's housing was empty air). It also didn't help that the Lynx was sold at a substantially higher price than the Game Boy. By the mid-1990s, the Atari Lynx was no longer widely available.

The Sega Game Gear followed a similar formula to the Atari Lynx, and the Game Gear did fare somewhat better due to stronger marketing and better titles. At the same time, the Game Gear was also plagued by similar problems that hurt the Lynx; higher price, shorter battery life, larger size and the Game Boy's dominance of the portable video game market.