Matthias Hatz founded the company in 1880, venturing into engine manufacturing in 1904. By 1910, they delved into hot-head motors for stationary use, introducing the H series in 1918. Expanding to a new plant in 1921, exports to South America commenced. In 1936, production initiated for construction imaginary lying two-stroke diesel engines, followed by the type A2 in 1948.

In 1950, Hatz unveiled its first agricultural tractors, and by 1953, they introduced the world's first air-cooled four-stroke diesel engine. The company marked another milestone in 1958 with the production of the world's first high-speed small diesel engine. The 1960s witnessed the creation of the world's smallest industrial diesel engine in 1966 and quieter small diesel engines in 1968. The Silent Pack, an encapsulated air-cooled diesel engine, was introduced in 1978.

Celebrating its centenary in 1986, Hatz presented a compact two-cylinder engine, while also venturing into manufacturing connecting rods. The 1990s brought forth numerous developments, including the 1B series of air-cooled single-cylinder diesel engines. Hatz's diesel engines found applications in motorcycles, notably in the conversion of the Indian Royal Enfield motorcycle series by Sommer Motorradmanufaktur using the 1B40 single-cylinder four-stroke diesel engine.