In 1963 Inoue Shigeyoshi, now director of the museum, happened on a book about folk toys that inspired him to start collecting toys from around Japan. He hoped to preserve these fast-disappearing cultural treasures of childhood for future generations. In 1974 he founded the Inoue Folk Toy Museum and built a 46-square meter space at his home to show his collection, which then numbered about 5,000 toys, to the public. Over the years, he continued adding to the museum collection and expanding its facilities.
In 1984 the museum was renamed the Japan Toy Museum. Its collection of 80,000 items from more than 145 countries is now housed in six buildings, with a space of 700 square meters. Display cases alone total 160 meters. Its size and outstanding collection have made it one of the world's unique museums.
While museum acquisitions are its core, the collection also contains invaluable toys and materials donated by Hashimoto Takeshi, Osaki Seiji, Kawano Kojiro, Watanabe Takayoshi, Wakabayashi Morio, Nagao Zenzo, Nose Yasuaki, and others.
Special collections worthy of mention here include kites, tops, temari (thread balls), hina dolls, chirimen (silk crepe) pouches, festival toys, toys that make noise, and toyboats and Christmas toys from around the world.

In 1998 the Japan Toy Museum was awarded the 20th Suntory Prize for Regional Culture.