The beginnings of Crowded House can be traced to when Neil Finn and Paul Hester, who were both in iconic New Zealand band Split Enz, decided to form a new band during the Split Enz farewell tour (Neil is the younger brother of Split Enz founder Tim Finn). Nick Seymour, brother of Mark Seymour (leader of Australian rock group Hunters & Collectors), approached Finn during the after party for the Melbourne show and asked if he could try out for the new band. Thus the first incarnation of the band, The Mullanes, formed in Melbourne in 1985 and also included guitarist Craig Hooper, formerly of The Reels. They secured a record contract with Capitol Records and moved to Los Angeles, but Hooper left the band. Changing their name to ’Crowded House’ (in reference to the cramped quarters the 3 remaining members shared in North Sycamore Street, West Hollywood), they invited former Split Enz keyboardist Eddie Rayner to join. Debut album, “Crowded House”, was released in June 1986, and the album's first single, "Mean to Me", failed to chart in the US. However, second single "Don't Dream It's Over", released in December 1986, reached number 2 in the US, with the video earning the MTV Video Music Award for “Best New Artist” in 1987 (the song has since been covered by artists such as Paul Young (1991) and Sixpence None The Richer (2003)). Buoyed by this success, the album reached the top of the Australian charts in June 1987. Third single, "Something So Strong", peaked at number 7 in the US, but “World Where You Live” and "Now We're Getting Somewhere" only achieved moderate international chart success. However, in 1988, having produced the track "Can't Carry On" for “Crowded House”, and touring in support of the album, keyboardist Rayner left the band for family reasons.

Second album “Temple of Low Men” was released in 1988, along with the single "Better Be Home Soon", which reached number 42 in the US. However the following 4 singles all failed to chart, and thus the album was not as successful as their debut. Supertramp member and multi-instrumentalist Mark Hart accompanied the band from January 1989 as a tour performer, taking Eddie Rayner's place, and around this time, Finn removed Seymour from the band, due to ‘artistic differences’. However, after a month, Seymour returned, and Crowded House decided to take a break.

Finn began writing songs with his brother Tim, with a view to releasing an album called “Finn”. These sessions yielded enough songs for an album, and Neil Finn moved onto the task of a third Crowded House album. After recording with Seymour and Hester, the record company rejected most of the songs, and Finn asked his brother if they could use some of the Finn songs - Tim agreed on the proviso that he joined the band. They returned to the studio, and the result was “Woodface”, released in July 1991. "Chocolate Cake" was released as the first single, a humorous comment on American excesses, but was not taken well by critics or the public in the US, failing to a position on the US Billboard 200 singles chart. Second single, "Fall at Your Feet" proved more successful in the US, but only reached number 75. The album sold well internationally, and its success, particularly in the UK, earned Tim and Neil Finn the Order of the British Empire (OBE) in June 1993 for their contribution to the music of New Zealand. During the first supporting tour for “Woodface”, Tim Finn was asked to leave part way through the UK leg, and Mark Hart was recalled to play keyboards for the remaining dates, after which he was made a permanent member of the band.

For their next album, “Together Alone”, Crowded House recruited New Zealand based Martin Glover (known as "Youth") to produce, and the sessions were recorded at Karekare Beach in New Zealand. The album, released in October 1993, kicks off with a jam session by the band, called "Karekare", after the beach. The first single to be released was the popular "Distant Sun", followed by "Private Universe". "Locked Out" was the album's first single to be released in the US, and received exposure on MTV and VH1, mainly due to its inclusion on the soundtrack for 1994 film “Reality Bites”.

In 1994, during a tour of Europe and the US, drummer Hester left the band, requesting more time with his family. Session drummer Peter Jones filled in for the remainder of the tour, but upon its completion, Finn decided it was time to bring the group to an end, and resumed work on “Finn” with Tim. The band officially dissolved in June 1996, announced via a press conference held by Neil Finn, who at the same time revealed plans to immediately release a Crowded House greatest hits album featuring 4 songs from each album and 3 songs intended for the group's cancelled fifth studio album ("Instinct", “Not The Girl You Think You Are" and "Everything Is Good for You", featuring backing vocals from Pearl Jam's Eddie Vedder). “Recurring Dream: The Best of Crowded House” went straight to number 1 in Australia and the UK upon release in June 1996. Later that year, the Sydney Children's Hospital required emergency funding and decided to raise the funds through a charity event. Crowded House reunited to help in the cause, performing a free concert on the footsteps of the Sydney Opera House, with all the band's members participating, including guest appearances from Peter Jones and Tim Finn. The concert was one of the biggest live performances in Australian history with varying reports of the crowd being between 120,000 and over 200,000 people. The concert was filmed and released on video, and in 2007, a double CD and a DVD was made available. In 1999, the group decided to release a collection of (formerly) rare and unreleased recordings, entitled “Afterglow”. It featured tracks such as "Anyone Can Tell", and "Recurring Dream", which had previously only been available on the soundtracks of the movies “Tequila Sunrise” and “Rikky And Pete” (as well as single B-sides).

After the dissolution of Crowded House, Peter Jones and Nick Seymour joined Australian group Deadstar for their second album, with Seymour leaving after the release of their third album to move to Ireland to work as a record producer (he produced “Neither Am I”, the debut by Irish group Bell X1, has worked with Gemma Hayes and Juno Falls, and also became a contributor to The Cake Sale collective, which brought him together with artists and musicians from Bell X1, The Frames, Damien Rice and Snow Patrol), and Jones remaining with the band until they disbanded in 1999, subsequently becoming a school teacher. Mark Hart rejoined Supertramp in the late 1990s, then toured as a part of Ringo Starr's All Starr band, and in 2001, released a solo album entitled “Nada Sonata” on the PSB Records label. Neil Finn enjoyed a successful solo career, releasing 2 albums and a soundtrack, Tim Finn released 4 solo albums, and together, the brothers recorded 2 LPs, “Finn” in 1995, and 2004’s “Everyone Is Here”. In 2001, Neil Finn also collaborated with members of Radiohead, session bassist Sebastian Steinberg, Pearl Jam's Eddie Vedder, Lisa Germano, and The Smiths’ Johnny Marr (with whom he later wrote the song "Even a Child"). He also joined with brother Tim and his son Liam’s band Betchadupa in a New Zealand based live collaboration, called 7 Worlds Collide, whose live concerts sold out and were released as a double CD and DVD in November 2001. Paul Hester, having left Crowded House in 1994, reunited with Anthony Field, who had formed a successful children's entertainment group, The Wiggles, with former members of rock group The Cockroaches. He also worked as a session drummer, and formed his own band Largest Living Things. He reunited with Seymour to play and record for Melbourne group Tarmac Adam in 2003, and later that year he was asked by Australian channel Music Max to host their successful “Music Max's Sessions” series. However, after a long battle with depression, Hester took his own life in March 2005 at the age of 46, hanging himself from a tree in a park near his home.

After Hester's death, Finn asked Seymour to play bass for his third solo album, and the duo joined with producer and drummer Ethan Johns to begin recording. However, during recording, they decided it would be better fit as a Crowded House album than a Neil Finn solo venture, and called upon Mark Hart to return to guitar and piano. In January 2007, the group publicly announced their reformation, and began to audition for drummers, resulting in former Beck drummer Matt Sherrod joining Crowded House in February 2007. Lead single "Don't Stop Now", produced by Steve Lillywhite, was released in Australia and the UK in June 2007, closely followed by the album “Time On Earth”, which reached number 1 in Australia.

In Australia, Crowded House have won 11 ARIA Awards from 26 nominations, including the first ever “Best New Talent” award in 1987, and they have been nominated for 11 APRA Awards, including the New Zealand Silver Scroll for "Don't Stop Now" in 2007, winning 8, with "Don't Dream It's Over" being named the 7th best Australian song of all time in 2001. In 1987, they won the MTV Video Music Award for “Best New Artist”.