The history of BFC Dynamo began with the founding of the sports club Dynamo Berlin in 1954. SC Dynamo Berlin entered the 1954–55 DDR-Oberliga after taking over the first team of SG Dynamo Dresden and its place in the league. The relocation was designed to provide the East German capital with a competitive team that could rival the teams from West Berlin. Prominent players in the team were Günter Schröter, Johannes Matzen, and Herbert Schoen. Dynamo Berlin captured its first trophy in the 1959 FDGB-Pokal. The team then finished the 1960 DDR-Oberliga as runner-up. However, the team was relatively weak in the 1960s and was overshadowed in the capital by ASK Vorwärts Berlin.

The football department of SC Dynamo Berlin was reorganised as the football club BFC Dynamo in 1966. The club was briefly relegated to the second tier DDR-Liga after the 1966–67 DDR-Oberliga. It then began a process to rejuvenate the team. Harald Schütze and Norbert Johannsen were among the young players that were given the opportunity to make appearances with the first team in the 1967–68 DDR-Liga. Other players from the youth department that would join the first team over the next season were Peter Rohde, Frank Terletzki, and Bernd Brillat. The team finished the 1970–71 FDGB-Pokal as runner-up and thus qualified for its first UEFA competition. The team reached the semi-finals of the 1971–72 European Cup Winners' Cup before losing to Dynamo Moscow in a penalty shoot-out; it became the first and, as of 2025, only football club in Berlin to have reached the semi-finals of the European Cup and the European Cup Winners' Cup club competitions.

A decline followed the successful 1971–72 season. However, BFC Dynamo developed a highly successful youth academy in the 1970s. The club had gained access to a nationwide scouting network supported by numerous training centres () (TZ) of SV Dynamo across East Germany. Talented players from the youth department were continuously integrated into the first team. The club had the youngest team in the 1975–76 DDR-Oberliga, with an average age of only 22.5 years. BFC Dynamo eventually established itself as one of the top teams in the DDR-Oberliga in the mid-1970s. Prominent players in the team in the late 1970s were Frank Terletzki, Wolf-Rudiger Netz, Reinhard Lauck, Hans-Jürgen Riediger, Lutz Eigendorf, and Norbert Trieloff.

Background: SC Dynamo Berlin (1954–1966) First years (1954–1957)

BFC Dynamo began as a football department of SC Dynamo Berlin. SC Dynamo Berlin was founded in East Berlin on 1 October 1954 as one of the new elite sports clubs in East German sports. As with all clubs bearing the name Dynamo, it was part of SV Dynamo, the sports association for the security agencies. The president of SV Dynamo was Erich Mielke, at the time Deputy State Secretary of the State Security Service, commonly known as the Stasi. Mielke was a football enthusiast who saw football as a way of aggrandizing East Germany and socialism.

The new sports club SC Dynamo Berlin became a center of excellence () of sports association SV Dynamo. In order to establish a competitive side in Berlin, the first team of Dynamo Dresden and its place in the DDR-Oberliga was transferred to the new sports club SC Dynamo Berlin. Political factors and pressure from Mielke were probably the main reasons behind the relocation. The relocation was designed to provide the capital with a team that could rival Hertha BSC, Blau-Weiß 1890 Berlin, and Tennis Borussia Berlin, which were still popular in East Berlin and drew football fans to West Berlin.

Among the players delegated from Dynamo Dresden were Johannes Matzen, Herbert Schoen, and Günter Schröter. The trio had been delegated from SV Deutsche Volkspolizei Potsdam to SV Deutsche Volkspolizei Dresden only a few years earlier. The Dresden team had been chosen as an ideologically acceptable replacement for the popular SG Friedrichstadt, which was dissolved by the authorities after the 1949–50 DDR-Oberliga, and its place in the Oberliga transferred to the Dresden team. It soon became a dominant side in East German football and was reformed as SG Dynamo Dresden in 1953. Dresden had two sides in the 1953–54 DDR-Oberliga. Berlin had no representation in the highest level of competition, which did not please SV Dynamo President Mielke. Berlin was the capital of the republic, and he thought it needed a strong football team to represent it.

The team played its first match as Dynamo Berlin on 21 November 1954 against BSG Rotation Babelsberg on the 10th matchday of the 1954–55 DDR-Oberliga in front of 20,000 spectators at the Friedrich-Ludwig-Jahn-Sportpark. The team lost the match 0–3. SC Dynamo Berlin then played its first home match at the Walter-Ulbricht-Stadion against BSG Fortschritt Meerane on 5 December 1954. The team won the match 2–1. Günter Schröter scored the first goal for SC Dynamo Berlin. The team remained undefeated in the following matches. SC Dynamo Berlin met local rival ZSK Vorwärts Berlin in the replay of the sixth matchday on 31 December 1954. The team won the match 4–0 in front of 12,000 spectators at the Walter-Ulbricht-Stadion. Johannes Matzen scored three goals in the match.

The football department of sports club SC DHfK Leipzig was dissolved in January 1955. SC DHfK Leipzig had competed with two teams in the 1954-55 DDR-Liga. The players of SC DHfK Leipzig were mostly split between ZSK Vorwärts Berlin and SC Dynamo Berlin, while SG Dynamo Dresden was allowed to take over one of the two places in the 1954-55 DDR-Liga. ZSK Vorwärts Berlin enjoyed full political support at the time and was allowed to take over most players from the first team of SC DHfK Leipzig, including seven future national team players. SC Dynamo Berlin, in turn, recruited a number of young players from SC DHfK Leipzig, including defender Martin Skaba and midfielder Werner Heine.

The team defeated BSG Chemie Karl-Marx-Stadt 2–1 in the 15th matchday of the 1954-55 DDR-Oberliga on 16 January 1955. SC Dynamo Berlin now stood at first place in the league. However, the team lost five players in the following months and dropped to the eighth place in the league by the 19th matchday. The young players from SC DHfK Leipzig were not yet ready to fill the gap. SC Dynamo Berlin eventually finished its first season in the DDR-Oberliga in seventh place. The team thus left rival ZSK Vorwärts Berlin, which had been relocated to East Berlin in a similar way a year earlier, behind. Karl-Heinz Holze and Johannes Matzen became the team's two best goalscorers in the league.

SC Dynamo was relatively successful in the short transitional 1955 DDR-Oberliga. The team was undefeated in the first five matchdays. The first loss came against top-team SC Empor Rostock in front of 7,000 sectators at the Stadion Steffenstraße on the sixth matchday, 9 October 1955. The team finished the season in third place. Günter Schröter became the second best goal scorer in the league with 11 goals in 13 matches.

SC Dynamo Berlin had a difficult start to the 1956 DDR-Oberliga. The first win came on the fifth matchday at home against BSG Motor Zwickau. Dynamo Berlin won the match 1-0 after a late winning goal by Johannes Matzen. The team was joined by young midfielder Waldemar Mühlbächer from BSG Fortschritt Meerane during the summer of 1956. Dynamo Berlin stood at 12th place in the league after the first half of the season. The team managed to climb to an eight place in the league after the 21st matchday, but then fell back again. Dynamo Berlin eventually finished the 1956 DDR-Oberliga in 13th place and suffered relegation to the second tier DDR-Liga.

First trophy (1957–1960) Hungarian Istvan Orczifalvi became new coach for the 1957 season. The team started the 1957 DDR-Liga with a 2–2 draw against BSG Motor Altenburg, but then quickly rose to the top of the league. Dynamo Berlin played a friendly match against Polish side Górniczy KS Szombierki Bytom on 9 May 1957. The team won the match 5–2 in front of 80,000 spectators at the Walter-Ulbrich-Stadion. The attendance number is allegedly the highest in the history of the club. Dynamo Berlin eventually finished the 1957 DDR-Liga in first place and immediately secured promotion back to the DDR-Oberliga.

The team was joined by goalkeeper Willi Marquardt from SC Wismut Karl-Marx-Stadt and forward Hermann Bley from ASK Vorwärts Berlin for the 1958 season. Marquardt became the new first-choice goalkeeper at the beginning of the season. For the second half of the 1958 season, the team would also be joined by the young defender Kornad Dorner from TSC Oberschönewede. Dorner made his debut for Dynamo Berlin in the DDR-Oberliga towards the end of the 1958 season.

The players of the former SG Dynamo Dresden team had aged. Günter Schröter and Herbert Maschke would remain central players to the team into the early 1960s, but most other players from the former Dynamo Dresden team had already left the team by the late 1950s. Herbert Schoen had played his last competitive matches for Dynamo Berlin during the 1957 season. Johannes Matzen suffered a serious injury in the match against SC Motor Jena in the 1958 DDR-Oberliga on 2 August 1958 and consequently had to end his playing career at the age of 33. The team of SC Dynamo Berlin would now instead be shaped by a new generation of players, such as Martin Skaba, Werner Heine, Waldemar Mühlbächer, Hermann Bley and Konrad Dorner.

SC Dynamo Berlin had difficulties establishing itself in football in Berlin. The team rarely drawing crowds larger than 5,000 spectators at the Walter-Ulbricht-Stadion. However, the team would eventually see new success in the 1959 season. Former assistant coach Fritz Bachmann became new coach for the 1959 season. He would make use of young talents such as Ralf Qest and Konrad Dorner. Dynamo Berlin finished the 1959 DDR-Oberliga in third place. Günter Schröter once again became the second best goalscorer in the league. Schröter had scored all five goals for Dynamo Berlin in its 5–0 victory over SC Lokomotiv Leipzig on the ninth matchday of the 1959 DDR-Oberliga on 10 May 1959. The team also reached the final of the 1959 FDGB-Pokal. The team defeated the new East German champion SC Wismut Karl-Marx-Stadt in the two-legged final and won the cup. The first match ended 0–0, but the replay was won 3–2, with two goals scored by Christian Hofmann and one penalty goal scored by Schröter. Dynamo Berlin had thus finally secured its first major trophy. However, despite winning the cup, Dynamo Berlin was not allowed to participate in the 1960–61 European Cup Winners' Cup. The German Football Association of the GDR () (DFV) found local rival and league runner-up ASK Vorwärts Berlin to be a more suitable representative of East Germany in the competition.

Dynamo Berlin recruited Romanian-born forward Emil Poklitar from BSG Rotation Babelsberg and forward Wilfried Klingbiel from BSG Lokomotive Stendal for the 1960 season. Poklitar would form an attacking duo with Günter Schröter. The team stood at 12th place after the first half of the 1960 DDR-Oberliga. The Hungarian János Gyarmati became the new coach in the summer of 1960. Gyarmati had previously coached SG Dynamo Dresden, SC DHfK Leipzig, ASK Vorwärts Berlin and the East Germany national football team. The recruitment of Gyarmati provoked the DFV, as Dynamo Berlin had recruited Gyarmati arbitrarily; it was actually the DFV who would decide on the appointment of a coach. Together with Gyarmati, the team went on a friendly tour to China and North Korea in July 1960. Dynamo Berlin rose in the league during the second half of the season. The team eventually finished the 1960 DDR-Oberliga as runner-up. Poklitar had proven to be a promising goalscorer, scoring 14 goals in 19 matches in the 1960 DDR-Oberliga.

The weak 1960s (1961–1965)