Peapod was founded in 1989 by Andrew and Thomas Parkinson, both of whom are still executive officers. It's original name was IPOD for Information and Product on Demand, but as they were creating their business cards they changed it to Peapod on a whim. Before 1996, it provided an on-line grocery shopping service in partnership with Jewel in Chicago and surrounding towns; Safeway in San Francisco, California; Randall's in Houston, Texas; and Kroger in Columbus, Ohio.

In 1996, it launched its website and became one of the earliest internet start-ups; the company made the Inc. 500 list of fast-growing privately held US companies. It parlayed this success and good press into an IPO on NASDAQ. Between 1997 and 2000, Peapod expanded into Boston, Watertown, Massachusetts, Long Island, New York, and Norwalk, Connecticut in partnership with Stop & Shop. In late 2000, they entered Washington, DC and surrounding towns with Giant Food.

The year 2000 also saw a fundamental change in Peapod's corporate structure. Worldwide grocery giant Royal Ahold bought 51% of Peapod's shares in June 2000. In August 2001, Royal Ahold bought out the entire company. As a result, Peapod cancelled its contracts with all grocery companies except for Royal Ahold's two main American chains, Stop & Shop and Giant Food. This caused Peapod to abandon San Francisco and Houston entirely, but the company maintained service, albeit with some interruptions and inconveniences, everywhere else.