In 1947, the Institute of Estonian Language and Literature was established under the Academy of Sciences of the Estonian S.S.R. The aim of the institute was to improve scientific research in Estonian and other Finno-Ugric languages, literature and folklore. Within the institute, the section of folkloristics was given the responsibility to prepare and publish academic text corpora and academic editions discussing the main features of Estonian literature, to write theoretical research, articles, monographs on all genres of folklore (Kalevala-metric and newer folk songs, singing games, fairy tales, legends, folklore of Baltic-Finnic and other Uralic nations, paremiology), to conduct fieldwork in cities and North-Estonia.

In 1990, the sector was split into three independent research groups: research group of Kalevala-metric folk song (head J. Oras), research group of paremiology (A. Krikmann), research group of folk belief and narrative research (M. Kõiva). This was forced by the necessity to develop and continue research into folk belief and narratives, which was virtually non-existent in the post-WWII Estonia, as well as the need to bring research material and paradigms up to date, to create a new generation of researchers alongside senior researchers.

In 1995, the Department of Folkloristics initiated the developing of a computer network and servers connecting all folklorists and establishing the basis for digital text corpora. Digitisation and media project needed close co-operation among research groups, resulting in a non-formal network. With support from different grants and other projects, a network server was set up. At the same time, Internet became an environment for research, public services and publishing. Different projects contributed to the founding of two academic journals (Mäetagused and Folklore: Electronic Journal of Folklore) in 1996, and the preparation of various online and printed publications.

In February 2000, the Department of Folkloristics was incorporated into the Estonian Literary Museum. Currently, the department includes four research groups.

Since 2002, the department has been involved in the Centre of Cultural History and Folkloristics in Estonia, a centre of excellence under the lead of Arvo Krikmann.

In 1947–1990, an average of 13 employees worked in the department. In 1990, there were 16 employees, 11 of them researchers. Researchers of the department are brilliant experts in Estonian folkloristics, internationally acclaimed scholars, and some of them the best in their field world-wide. Researchers of the department have become heads of leading Estonian centres of folkloristics (University of Tartu, Estonian Folklore Archives, Viljandi Culture Academy).