Logo as 'SkyDrive' At its launch the service, known as Windows Live Folders at the time (with a codename of SkyDrive), was provided as a limited beta available to a few testers in the United States. On August 1, 2007, the service was expanded to a wider audience. Shortly thereafter, on August 9, 2007, the service was renamed Windows Live SkyDrive and made available to testers in the United Kingdom and India. As of 22 May 2008 SkyDrive was initially available in 38 countries and regions., later expanded to 62. On December 2, 2008, the capacity of an individual SkyDrive account was upgraded from 5 GB to 25 GB, and Microsoft added a separate entry point called Windows Live Photos which allowed users to access their photos and videos stored on SkyDrive.

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This entry point allowed users to add 'People tags' to their photos, download photos into or as a file, as well as viewing metadata such as camera information for the photos uploaded. Microsoft also added the ability to have full-screen slide shows for photos using. SkyDrive was updated to 'Wave 4' release on June 7, 2010, and added the ability to work with Office Web Apps (now known as ), with versioning. In this update, due to the discontinuation of, the ability to synchronise and share bookmarked web links between users via SkyDrive was also discontinued. However, users were still able to use, which replaced the previous, to synchronize their favorites between computers until its discontinuation in February 2013. In June 2010, users of, released in October 2007, were migrated to Windows Live Office. The migration included all existing workspaces, documents, and sharing permissions.

The merger of the two services was a result of Microsoft's decision to merge its Office Live team into Windows Live in January 2009, as well as several deficiencies with Office Live Workspace, which lacked high-fidelity document viewing and did not allow files to be edited from within the web browser. Office Live Workspace also did not offer offline collaboration and co-authoring functionality – instead documents were 'checked out' and 'checked in', though the service did integrate with for real-time screen sharing. On June 20, 2011, Microsoft overhauled the user interface for SkyDrive, built using technologies.

The updated version featured caching, hardware acceleration,, quick views, cleaner arrangement of photos and infinite scrolling. Microsoft also doubled the file size limit from 50 MB to 100 MB per file.

With this update, Microsoft consolidated the different entry points for SkyDrive, such as Windows Live Photos and Windows Live Office, into one single interface. Files and folders shared with a user, including those in, were also accessible in the new interface. On November 29, 2011, Microsoft updated SkyDrive to make sharing and file management easier, as well as HTML5 and other updates. This update also allowed users to see how much storage they had (and how much they had used), a feature that had been removed in the previous update as part of the redesign.