The Shetland Sheepdog originates from the islands that lie northwest of the British Isles, between Scotland and Norway, approximately 50 miles north of Scotland and a bit south of the Arctic Circle. As can well be imagined, the climate is harsh and the terrain, rugged. The limited space of these islands has resulted in this area giving the world a number of small breeds of animals, including the Shetland Ponies and the rare Shetland Sheep.

The Shetland Sheepdog used to be called the "Toonie", a name taken from "tun", the Norwegian word for farm. The winters on the Shetland Isles are long, the vegetation sparse, and the growing season is short. The "crofters", small farmers, needed a small, hardy dog to herd the flocks, to keep the flocks safe, and also to keep the gardens safe from the flocks.

The Shetland Sheepdog and the larger herding Collie probably have a common ancestor, a herding dog bred in the British Highlands, perhaps similar to today's Border Collie.  The dogs that remained on the Scottish mainland eventually developed into the majestic Rough Collie; those that were taken to the Shetland Isles were down-sized to meet the needs of the island, people and their undersized livestock.
In the early 1800's, the Sheltie was brought from his home islands to the mainland, where he gained a reputation as a fine herding dog.  The descriptions of the Sheltie were that of a miniature Collie.  Of course, there were those that found the Sheltie's looks "unrefined", and unfortunately, a series of crossbreeding was done by some breeders to "improve" the breed.  Some were crossed with the Rough Collies to fix the Collie head, ears and coat. The bigger dogs also introduced longer legs and larger bodies to the Sheltie gene pool.  Spaniels were also crossed into the breed with mixed results; the spaniels calmed the Sheltie's disposition, but also introduced some undesirable physical traits, such as, domed heads, spaniel ears and curly coats.
The English Kennel Club recognized the breed in 1909, the name given was the Shetland Collie, and in 1914, the Shetland Collie became known as the Shetland Sheepdog, a completely separate breed.
A year or so after the English Kennel Club recognized the Sheltie, the breed came into the United States.  The American Kennel Club recognized the Shetland Sheepdog and registered its first Sheltie in 1911.