The term restriction enzyme originated from the studies of phage λ, a virus that infects bacteria, and the phenomenon of host-controlled restriction and modification of such bacterial phage or bacteriophage. The phenomenon was first identified in work done in the laboratories of Salvador Luria, Jean Weigle and Giuseppe Bertani in the early 1950s.  It was found that, for a bacteriophage λ that can grow well in one strain of Escherichia coli, for example E. coli C, when grown in another strain, for example E. coli K, its yields can drop significantly, by as much as 3-5 orders of magnitude. The host cell, in this example E. coli K, is known as the restricting host and appears to have the ability to reduce the biological activity of the phage λ. If a phage becomes established in one strain, the ability of that phage to grow also becomes restricted in other strains. In the 1960s, it was shown in work done in the laboratories of Werner Arber and Matthew Meselson that the restriction is caused by an enzymatic cleavage of the phage DNA, and the enzyme involved was therefore termed a restriction enzyme.
The restriction enzymes studied by Arber and Meselson were type I restriction enzymes, which cleave DNA randomly away from the recognition site. In 1970, Hamilton O. Smith, Thomas Kelly and Kent Wilcox isolated and characterized the first type II restriction enzyme, HindII, from the bacterium Haemophilus influenzae. Restriction enzymes of this type are more useful for laboratory work as they cleave DNA at the site of their recognition sequence and are the most commonly used as a molecular biology tool. Later, Daniel Nathans and Kathleen Danna showed that cleavage of simian virus 40 (SV40) DNA by restriction enzymes yields specific fragments that can be separated using polyacrylamide gel electrophoresis, thus showing that restriction enzymes can also be used for mapping DNA. For their work in the discovery and characterization of restriction enzymes, the 1978 Nobel Prize for Physiology or Medicine was awarded to Werner Arber, Daniel Nathans, and Hamilton O. Smith. The discovery of restriction enzymes allows DNA to be manipulated, leading to the development of recombinant DNA technology that has many applications, for example, allowing the large scale production of proteins such as human insulin used by diabetic patients.