Arkia was founded in 1949 as Israel Inland Airlines when it became clear that there was demand for a local airline to connect Tel Aviv with different regions of the new state of Israel, especially with Eilat, Israel's important seaport on the Gulf of Aqaba. Flights started in 1950 with De Havilland DH.89 aircraft, followed by Douglas DC-3s, to inter-connect major towns in Israel from Rosh Pina in the North to the port of Eilat in the South. El Al held a 50% stake in the airline at this time with the Histadrut, Israel's labour federation, being the other shareholder. The airline later adopted the name Eilata Airlines - Aviron, and Arkia Israel Airlines. In its first year of service, Israel Inland Airlines carried 13,485 passengers, using a Curtis Commando.
During the 1950s, the airline continued to grow, upgrading its fleet to the larger DC-3, and operating two flights a day on the Tel Aviv-Eilat route. This allowed Arkia to have annual passenger figures of over 70,000. As Eilat continued to grow during the 1960s, so did the airline, introducing the Handley Page Dart Herald series 200 turboprop aircraft to its fleet between 1967–1968, enabling Arkia to expand with new routes to Jerusalem, Sharm-el-Sheikh, and Santa Caterina. A subsidiary, Kanaf Arkia Airline and Aviation Services was founded as the airline acquired 50% of the stock of Kanaf Airlines and Aviation Services and, by the end of the 1960s, scheduled flights were in operation across Israel, from Rosh Pina in the north, to Ofira in the south.