Prior to the formation of the OSS, American intelligence had been conducted on an ad-hoc basis by the various departments of the executive branch, including State, Treasury, Navy and War. They had no overall direction, coordination, or control. The United States Army and the United States Navy had separate code-breaking departments (Signal Intelligence Service and OP-20-G) that not only competed, but refused to share break-throughs. Also, the original code-breaking operation of the United States Department of State, MI8, run by Herbert Yardley, had been shut down in 1929 by Secretary of State Henry Stimson because "gentlemen don't read each other's mail". President Franklin D. Roosevelt was concerned about American intelligence deficiencies. On the suggestion of Canadian spymaster William Stephenson, the senior representative of British intelligence in the western hemisphere, Roosevelt directed Stephenson's friend William J. Donovan, a World War I veteran, Republican, and New York lawyer, to draft a plan for an intelligence service.
OSS had a dismal security reputation. Established agencies like the FBI and G-2 believed that Donovan's outfit, built from scratch with many corners cut in the hiring of its staff, had been penetrated with subversives and spies. At least fifteen Soviet agents penetrated the OSS, with the actual number more likely around twenty.
Soviet sympathizers and spies worked in OSS offices in Washington and the field. Some were hired precisely because they were Communists; Donovan wanted their help in dealing with partisan groups in Nazi-occupied Europe. Others who were not Communists, such as Donovan's aide Duncan Lee, Research and Analysis (R&A) labor economist Donald Wheeler, Morale Operations Indonesia expert Jane Foster Zlatowski, and R&A Latin America specialist Maurice Halperin, nevertheless passed information to Moscow. OSS operations in China, moreover, were badly penetrated by Communist agents working as clerical and housekeeping staff, or training in OSS camps for operational missions.
The OSS purchased Soviet code and cipher material (or Finnish information on them) from émigré Finnish army officers in late 1944. Secretary of State Edward Stettinius, Jr.'s protested this violated an agreement President Roosevelt made with the Soviet Union not to interfere with Soviet cipher traffic from the U.S. Donovan might have copied the papers before returning them the following January but there is no record of Arlington Hall receiving them, and CIA and NSA archives have no surviving copies.
In October 1945 the OSS was dissolved and its functions were split between the Departments of State and War. State received the Research and Analysis Branch of OSS which was renamed the Interim Research and Intelligence Service (IRIS) and headed by Alfred McCormack. The Department of War took over the Secret Intelligence (SI) and Counter-espionage (X-2) Branches that were housed in a new office created for just this purpose - The Strategic Services Unit (SSU). The Secretary of War appointed Brigadier General John Magruder (formerly Donovan's Deputy Director for Intelligence in OSS) as director to oversee the liquidation, and more importantly the preservation of the OSS' clandestine intelligence capability. In January 1946, President Truman created the Central Intelligence Group (CIG) which was the direct precursor to the CIA. The assets of the SSU, which now constituted a streamlined "nucleus" of clandestine intelligence was transferred to the CIG in mid-1946 and reconstituted as the Office of Special Operations (OSO). In 1947 the National Security Act established America's first permanent peacetime intelligence agency, the Central Intelligence Agency, which took up the functions of the OSS.
Famous OSS members
- Moe Berg - Chicago White Sox catcher
- William J. Casey - Campaign manager for Ronald Reagan and later CIA Director
- Julia Child - Famed chef
- Miles Copeland - father of Stewart Copeland, drummer for the band The Police
- Arthur Goldberg - Supreme Court Justice
- John Hemingway - son of author Ernest Hemingway
- Quentin and Kermit Roosevelt - sons of President Theodore Roosevelt
Known Soviet operatives
The following list lays out the some of what is known about Soviet penetration of the OSS. Eugene Dennis, a high ranking CPUSA member who later became its General Secretary, handled the OSS operatives.
- Carl Marzani, Deputy Chief Photographic Presentation Branch Office of Strategic Services; United States Department of State
- Thomas Babin, OSS section working with Yugoslav resistance
- Horst Baerensprung, OSS consultant on Germany
- Linn Farish
- Jane Foster, OSS Far Eastern and Indonesian section
- Maurice Halperin, chief of the Latin American Division of OSS Research and Analysis
- Hans Hirschfeld, OSS consultant on Germany  (in Dutch)
- Bella Joseph, motion picture section of OSS
- Julius Joseph, OSS Far Eastern section
- Philip Keeney, OSS librarian; husband of Mary Jane Keeney
- Duncan Lee, counsel to General Donovan and the OSS's Japanese intelligence section
- Leonard Mins, Russian section of OSS Research and Analysis
- Franz Leopold Neumann
- John Scott
- Helen Tenney, OSS Spanish section
- Donald Wheeler, OSS Research and Analysis
- Koji Ariyoshi
- Exchange with Arthur Herman and Venona book talk, Joint Herman and Haynes Book Talk, Borders, Washington, D.C., February 2000,
- The Office of Strategic Services: America's First Intelligence Agency, Michael Warner, CIA History Staff, Center for the Study of Intelligence, Published: United States Central Intelligence Agency, 2000.
- Emergence of the Intelligence Establishment, 1945-1950, Office of the Historian, United States Department of State, July 1996.
- Counterintelligence Reader, Vol. 2 Ch. 3, National Counterintelligence Center, 2004.