Although initially unrelated, in June 1964 NASA headquarters in Washington set up the Apollo Logistic Support System Office, originally intended to study various ways to modify the Apollo hardware for scientific missions. The office originally proposed a number of projects for direct scientific study, including an extended-stay lunar mission which required two Saturn V launchers, a "lunar truck" based on the Lunar Module (LM), a large manned solar telescope using an LM as its crew quarters, and small space stations using a variety of LM or CSM-based hardware. Although not looking at the space station specifically, over the next two years the office would become increasingly dedicated to this role. In 1965 the office was renamed, becoming the Apollo Applications Program.

As part of their general work, in August 1964 MSC presented studies on an expendable lab known as Apollo "X", short for Apollo Extension System. Apollo X replaced the LM carried on the top of the S-IVB stage with a small space station just larger than the CSM's service area, containing supplies and experiments for missions between 15 and 45 days duration. Using this study as a baseline, a number of different mission profiles were looked at over the next six months.

Wernher von Braun proposed a more ambitious plan to build a much larger station. His design replaced the S-IVB stage of a complete Saturn V with an aeroshell, primarily as an adaptor for the CSM on top. Inside the shell was a cylindrical equipment section slightly smaller in diameter than the CSM. On reaching orbit, the S-II booster would be vented to remove any remaining hydrogen fuel, then the equipment section would be slid into it via a large inspection hatch. The station filled the entire interior of the S-II stage's hydrogen tank, with the equipment section forming a "spine" and living quarters between it and the walls of the booster. This would have resulted in a very large 33 x 45 foot living area. Power was to be provided by solar cells lining the outside of the S-II stage.

One problem with this proposal was that it required a dedicated Saturn V launch to fly the station. You could not "piggyback" the station's launch on a lunar mission; those required a working S-IVB stage. At the time the design was being proposed, all of the then-contracted Saturn V's were already earmarked for moon launches. Further work led to the idea of launching a smaller station based on the S-IVB instead, launching it on a surplus Saturn IB. Several planned Earth-orbit test missions for the LM and CSM had been cancelled, leaving several Saturn IB's free for use.

Since the Saturn I had a much lower throw weight capability, the S-IV stage could not be left empty, its thrust would be needed for the mission. This limitation led to the development of the wet workshop concept, which led naturally out of von Braun's idea of using an existing stage after its fuel had burned off. However, in this case the station was to be built out of the S-IVB stage itself, as opposed to the S-II below it. A number of S-IVB-based stations were studied at MSC, but even the earliest, from mid-1965, had much in common with the Skylab design that actually flew. An airlock was placed in the equipment area immediately below where the LM sat on a moon mission, and a minimum amount of equipment was installed in the tank itself in order to avoid taking up too much fuel volume. After launch, a follow-up mission launched by a Saturn IB would carry up additional equipment in place of its LM, including solar panels, an equipment section and docking adaptor, and various experiments. Douglas Aircraft, builders of the S-IVB stage, were asked to prepare proposals along these lines.

On April 1, 1966, MSC send out contracts to Douglas, Grumman, and McDonnell for conversion of a S-IVB spent stage under the name Saturn S-IVB spent-stage experiment support module (SSESM). In May the Apollo astronauts voiced concern over purging the stage's hydrogen tank in space. Nevertheless, in late July it was announced that the Orbital Workshop would be launched as a part of Apollo mission AS-209, originally one of the Earth-orbit CSM test launches, followed by two Saturn I/CSM crew launches, AAP-1 and AAP-2.

Design work continued over the next two years, in an era of shrinking budgets. In August 1967 NASA announced that the lunar mapping and base construction missions examined by the AAP were being cancelled. Only the Earth-orbiting missions remained, namely the Orbital Workshop and Apollo Telescope Mount solar observatory. Later several moon missions were cancelled as well, originally to be Apollo missions 18 through 20. The cancellation of these missions freed up three Saturn V boosters for the AAP program. Although this would have allowed them to develop von Braun's original S-II based mission, by this time so much work had been done on the S-IV based design that worked continued on this baseline. With the extra power available, the wet workshop was no longer needed; the S-IC and S-II lower stages could launch a "dry workshop" directly into orbit.

Skylab was launched May 14, 1973 by a Saturn INT-21 (a two-stage version of the Saturn V launch vehicle). The launch is sometimes referred to as Skylab 1, or SL-1. Severe damage was sustained during launch, including the loss of the station's micrometeoroid shield/sun shade and one of its main solar panels. Debris from the lost micrometeoroid shield further complicated matters by pinning the remaining solar panel to the side of the station, preventing its deployment and thus leaving the station with a huge power deficit. The station underwent extensive repair during a spacewalk by the first crew, which launched on May 25, 1973 (the SL-2 mission) atop a Saturn IB. Two additional missions followed on July 28, 1973 (SL-3) and November 16, 1973 (SL-4) with stay times of 28, 59, and 84 days, respectively. The last Skylab crew returned to Earth on February 8, 1974.