In 1988, the Government of Canada and the National Association of Japanese Canadians signed the Japanese Canadian Redress Agreement. The Agreement acknowledged that the treatment of Japanese Canadians during and after World War II was unjust and violated principles of human rights. Under the terms of the agreement, the federal government also promised to create a Canadian Race Relations Foundation, which would "foster racial harmony and cross-cultural understanding and help to eliminate racism."

The federal government proclaimed the Canadian Race Relations Foundation Act into law on October 28, 1996. The Foundation officially opened its doors in November 1997.

The Foundation's office is located in the City of Toronto but its activities are national in scope. It operates at arm's length from the federal government, and its employees are not part of the federal public service. The Foundation has registered charitable status.

The National Association of Japanese Canadians (NAJC) negotiated a contribution of $12 million on behalf of its community, matched by an equal amount from the Government of Canada, to create a one-time $24 million endowment fund to establish the Foundation.