Ushiro

Level-5 was established in October 1998 by Akihiro Hino and his development team at Riverhillsoft, following the release of OverBlood 2. Since Hino did not originally believe that his team could become an independent developer, he formed a partnership with Sony Computer Entertainment, who would allow him to develop for its upcoming PlayStation 2 under the condition that he set up his own company. The name, "Level-5", was a reference to Japanese school report cards, where "Level-5" is the highest possible mark. Soon after being created, the company had eleven employees.

Level-5's first full-scale production was the action role-playing game Dark Cloud, developed under contract by Sony Computer Entertainment. Intended to be a launch game for the Japanese release of the PlayStation 2, it was delayed before the console's launch in March 2000 to allow further development, eventually being released in Japan in December 2000, and worldwide in 2001. Work immediately began on a sequel titled Dark Chronicle, released as Dark Cloud 2 in North America. The company was working with Microsoft Game Studios on an MMORPG for the Xbox, True Fantasy Live Online, before it was cancelled in 2004.