An underground film is a film that is out of the mainstream either in its style, genre, or financing. The first use of the term "underground film" occurs in a 1957 essay by American film critic Manny Farber, "Underground Films." Farber uses it to refer to the work of directors who "played an anti-art role in Hollywood." He contrasts "such soldier-cowboy-gangster directors as Raoul Walsh, Howard Hawks, William Wellman," and others with the "less talented De Sicas and Zinnemanns [who] continue to fascinate the critics."

In the late 1950s, "underground film" began to be used to describe early independent film makers operating first in San Francisco, California and New York City, New York, and soon in other cities around the world as well, including the London Film Makers Co-Op in Britain and Ubu Films in Sydney, Australia. The movement was typified by more experimental filmmakers working at the time like Stan Brakhage, Harry Smith, Maya Deren, Andy Warhol, Jonas Mekas, Ken Jacobs, Ron Rice, Jack Smith, George Kuchar, Mike Kuchar, and Bruce Conner.

By the late 1960s, the movement represented by these filmmakers had matured, and some began to distance themselves from the countercultural, psychedelic connotations of the word, preferring terms like avant-garde or experimental to describe their work.

Through 1970s and 1980s, however, "underground film" would still be used to refer to the more countercultural fringe of independent cinema. The term was embraced most emphatically by Nick Zedd and the other filmmakers associated with the New York based Cinema of Transgression and No Wave Cinema of the late 1970s to early 1990s.

In the early 1990s, the legacy of the Cinema of Transgression carried over into a new generation, who would equate "underground cinema" with transgressive art, ultra-low-budget filmmaking created in defiance of both the commercialized versions of independent film offered by newly wealthy distributors like Miramax and New Line, as well as the institutionalized experimental film canonized at major museums. This spirit defined the early years of underground film festivals (like the New York Underground Film Festival, Chicago Underground Film Festival, Melbourne Underground Film Festival, Toronto's Images Festival, and others), zines like Film Threat, as well as the works of filmmakers like Craig Baldwin, Jon Moritsugu, Sarah Jacobson and Bruce La Bruce. In London the Underground resurgence emerged as a movement of Underground cinema clubs which included the radical open access group the Exploding Cinema.

By the late 1990s and early 2000s, the term had become blurred again, as the work at underground festivals began to blend with more formal experimentation, and the divisions that had been stark ones less than a decade earlier now seemed much less so. If the term is used at all, it connotes a form of very low budget independent filmmaking, with perhaps trangressive content, or a lo-fi analog to post-punk music and cultures.