It comes from outdated racial classification systems that divided humans into large racial groups based on the pseudoscience of craniometry. The original system, developed in the late 18th Century in Germany, divided people into three racial classifications: Caucasoid (white/European), Negroid (black/African), and Mongoloid (Asian/Pacific/Native American). Johann Friedrich Blumenbach further refined this system into five groups: Caucasian, Mongolian, Ethiopian, Malayan, and American. In Blumenbach's system, Mongolian referred more specifically to people of East Asian and Central Asian origin. Blumenbach argued that, while all of these racial groups came from the same starting point (the Caucasian Adam and Eve), the other races had undergone "degeneration" based on their environment and lifestyle that led to their differences from the Caucasian race. Another popular argument at the time, known as polygenism, argued that the different racial groups came from separate evolutionary origins, rather than the differences emerging from the same original race. There were further variations of these two theories proposed during the 19th Century, but the term "Mongolian" or "Mongoloid" was retained in these contexts.

These pseudoscientific classification systems were the starting point of scientific racism, which became prominent in the 19th Century, as well as a key component of white supremacist ideologies, notably the theory of the "Aryan master race", which was developed by Arthur de Gobineau and later adopted by the Nazis. These allegedly "scientific" ideas were presented as empirical evidence to support discriminatory policy around the world, including Jim Crow in the United States, Apartheid in South Africa, and the racial/eugenic policies of Nazi Germany. In the United States, the term "Mongolian" was frequently used in discriminatory measures passed against East Asian immigrants and Alaskan/Pacific Natives in the second half of the 19th Century and the first half of the 20th Century, particularly in the western US. For example, California law once prohibited "Mongoloid" children (as well as black and Native American children) from attending public schools with white children. These terms also popped up in other usages, such as the archaic medical terms "Mongolism" or "Mongolian idiocy" for what's now known as Down Syndrome, because the typical facial features of people with Down Syndrome superficially resembled Blumenbach's descriptions of the alleged craniometric traits of "Mongolian" peoples. This term remained in use until the 1960s, when protests from the Mongolian government (as well as the repudiation of racist pseudoscience in general) led to the removal of the term.