In 1910, the Indian Protection Service (Serviço de Proteção ao Índio), or the SPI, was founded under the lead of Brazilian Marshal Candido Rondon. Rondon created the foundation's motto: "Die if necessary, but never kill." Drawing from his Positivism, Rondon led the SPI with the belief that the native Indians should be allowed to develop at their own pace. With state assistance and protection, Indians would eventually integrate into modern society. The SPI then began its mission to "pacify" Indian communities by setting up posts in their territories to foster communication and protection. Efforts were initially met by opposition and hostility from Indian groups; there were reports of SPI agents being attacked and shot by arrows. During the 1950s and 1960s, following the death of Rondon, the SPI's officials became corrupt. In 1967 the officials were accused of sexual perversion, abuse, and the massacre of entire tribes by introducing diseases and pesticides, leading to an international outcry for the disbandment of SPI. Following this disbandment, FUNAI was created to take over SPI's responsibilities and remedy the damages caused by corruption.
FUNAI was created by Law No. 5,371, under jurisdiction of the Ministry of Justice and headquartered in Brasilia. On December 19, 1973, Law No. 6001 officially placed Indians under the protection of FUNAI through the Indian Statute. The Indian Statute, while aiming to demarcate all Indian lands by 1978, also had the main goal to integrate Indians into society as soon as possible, so that the Amazon and its people could start contributing economically to Brazilian society. Protection from a government agency is important for Indian populations, but this also means that FUNAI, as a part of the government, has authority to act contrary to the welfare of the Indians. For example, the Indian Statute permitted mining on indigenous lands; a decree in 1983 restricted mining to minerals necessary only for national defense and security, but still allowed private companies to have licenses and use indigenous labor if necessary. Also, in the early 1970s, FUNAI president General Jerônimo Bandeira de Mello approved the plan for a trans-Amazonian highway that would run through Brazil's Amazon to Peru's frontier. This highway granted access to the previously inaccessible interior of the Amazon, allowing government and private agencies to use it for their advantage. The highway led to the relocation and extermination of many indigenous tribes by the government and other private agencies, and logging along the highway directly led to deforestation along the affected parts of the Amazon. Sydney Possuelo was one of the sertanistas/explorers sent to find and relocate the tribes living along the path of the highway. Possuelo and other sertanistas were disturbed by the amount of indigenous deaths their contact caused, and met in 1987 to try to stop it. Possuelo's efforts greatly influenced FUNAI's change in policy from "pacification" and integration to preservation.
The Central Department for Isolated Indians and Recently Contacted Indians is a division within FUNAI to handle dealings with isolated indigenous tribes. Article 231 of the 1988 Constitution expresses indigenous peoples' rights to preserve their culture, traditions, and customs; since contact with mainstream society could jeopardize isolated tribes' culture, FUNAI undertakes efforts to maintain these tribes' isolation. The CGIIRC division is responsible for protecting areas with known isolated tribes from outside contact, since outside contact could spread disease within indigenous communities. The Department is present in 12 regions of Brazil's Amazon region, and almost all of Brazil's known uncontacted tribes reside within already demarcated lands. FUNAI has records of about 107 isolated Indians' presence.
The Brazilian Constitution of 1988 recognized Indians' rights to practice their customs without pressure to assimilate or integrate into mainstream Brazilian society. Article 231 also defines Indians' rights to their lands, and outlines FUNAI's responsibility to demarcate those lands. The article also provides that mining and other energy resources on indigenous lands is only allowed with the approval of Congress, and after taking into account the Indigenous populations' input. The Constitution set a goal of demarcating indigenous lands in five years, but by 1993 only 291 of 559 indigenous territories were demarcated.
In 1991, Decree 22 outlined five steps FUNAI must follow to demarcate indigenous lands: