To commemorate the state’s 1916 centennial anniversary, the Indiana General Assembly issued a resolution to adopt a state flag. At the request of the General Assembly, a contest was sponsored by the Indiana Society of the Daughters of the American Revolution to design a flag to serve as the official state banner. As an incentive to increase the number of submissions, the contest offered the winner a one hundred dollar cash prize. More than two hundred submissions were received and examined by the Society before a winner was selected. The entry created by Paul Hadley of Mooresville, Indiana, was ultimately chosen as the winner of the contest and the cash prize.

On May 31, 1917, the flag was chosen as the state’s official banner. The General Assembly made only one change to Hadley’s original design: they added the word Indiana, in a crescent shape, over the top of the torch. The state banner was later renamed the state’s flag in a new statute passed in 1955 that also standardized the dimensions of the flag.