The idea to open a second university in Brunei was first addressed by His Majesty Sultan Hassanal Bolkiah in his Titah delivered at University of Brunei Darussalam’s 16th convocation in 2004 and again in 2005 at UBD’s 17th convocation whereby His Majesty had stated that the second university shall be an Islamic university. The overall aim of the new university is to become a centre for the spread of Islam in the region.

The university took its name from the Sharifate of Mecca, Barkat Ali ibnu Sharif Ajlan ibnu Sharif Rumaithah, known as Sultan Sharif Ali, who was a descendant of Islamic prophet Muhammad and appointed as the third Sultan of Brunei after marrying the daughter of the previous sultan. He was the first sultan to build a mosque in Brunei; it was destroyed during Allied bombing in 1945/46.

On 11 Zulhijjah 1427AH (1 January 2007), Universiti Islam Sultan Sharif Ali was established. UNISSA received its first batch of students in August 2007. 125 undergraduates and 27 postgraduate students were admitted. On its launch UNISSA absorbed academic and non-academic staff as well as its students from the Sultan Haji Omar Ali Saifuddien Institute of Islamic Studies (IPISHOAS) which had hitherto been a part of UBD. At the time, UNISSA did not have their own premises and had to use IPISHOAS as their base.

In February 2009 the university moved to a new campus in Gadong at the former Pengiran Anak Puteri Rashidah College of Nursing to allow more room for expansion and facilities.