At the close of 1916, work began on the first successful fighter biplane at the Pfalz Flugzeugwerke in Speyer am Rhein. Up to this point, the company founded by the Eversbusch brothers had mainly made a name with its E I to E IV monoplanes, with a design very similar to the Morane-Saulnier. However, the last of these models to be developed as the D 4 biplane never got beyond the prototype stage and the Pfalz Flugzeugwerke initially built the Roland D II and D IIa fighters under license. The experience the company had gathered helped the design engineers to develop their own designs for an advanced fighter aircraft. At the end of 1916, chief design engineer Rudolph Gehringer and his two assistants Geldmacher and Paulus started work on designing the Pfalz D III. Since the Pfalz-Flugzeugwerke were also provided with a captured Nieuport 11, the design of the D III, was influenced by this aircraft, as was design work at the Albatros-Werke. The design and configuration of the wings used in the aircraft closely followed the French design, but without taking over its weaknesses. In contrast to the Albatros D III, design engineers at Pfalz focused on making the lower wing as stable as possible and designed it with two spars, avoiding the ends of the upper wings projecting too far aft. This aircraft also had a fully designed transition from the lower wing to the fuselage.
In spring 1917, the first prototype of the Pfalz D III was ready. One Daimler D III inline engine delivering power of 120 kW provided the power unit. This engine was integrated as far as possible within the plywood fuselage which was manufactured as the relatively expensive semi-monocoque fuselage. The two machine guns were also almost completed enclosed in the fuselage. However, in the D IIIa developed shortly afterwards, these were mounted on the upper decking above the nose of the fuselage to make it much easier to service the guns. These aircraft also had one slightly enlarged vertical stabilizer and some were fitted with a high-compression Daimler D IIIa engine delivering power of 132 kW.
At the end of August 1917, the first Pfalz D III was delivered to units at the front where it mainly saw service in Bavarian fighter squadrons. These units generally preferred the aircraft to the Albatros D III. The aircraft were successful, mainly thanks to their high speeds when diving and excellent visibility for the pilots. Although there were initial problems with the strength of ends of the upper wings, these were quickly rectified. Allied pilots were particularly impressed by the sturdy construction of the Pfalz DIII, although this significantly slowed down volume production by comparison with the Albatros D III. Some 1000 Pfalz D III and D IIIa aircraft were built until they were replaced in squadrons serving on the front from the summer of 1918.
