The kingdom was founded when the Graeco-Bactrian king Demetrius invaded the subcontinent early in the 2nd century BC. The Greeks in the Indian Subcontinent were eventually divided from the Graeco-Bactrians centered in Bactria (now the border between Afghanistan and Uzbekistan), and the Indo-Greeks in the present-day north-western Indian Subcontinent. The most famous Indo-Greek ruler was Menander (Milinda). He had his capital at Sakala in the Punjab (present-day Sialkot).
The expression "Indo-Greek Kingdom" loosely describes a number of various dynastic polities, traditionally associated with a number of regional capitals like Taxila, (modern Punjab (Pakistan)), Pushkalavati and Sagala. Other potential centers are only hinted at; for instance, Ptolemy's Geographia and the nomenclature of later kings suggest that a certain Theophila in the south of the Indo-Greek sphere of influence may also have been a satrapal or royal seat at one time.
During the two centuries of their rule, the Indo-Greek kings combined the Greek and Indian languages and symbols, as seen on their coins, and blended Greek and Indian ideas, as seen in the archaeological remains. The diffusion of Indo-Greek culture had consequences which are still felt today, particularly through the influence of Greco-Buddhist art..
Following the death of Menander, most of his empire splintered and Indo-Greek influence was considerably reduced. Many new kingdoms and republics east of the Ravi River began to mint new coinage depicting military victories. The most prominent entities to form were the Yaudheya Republic, Arjunayanas, and the Audumbaras. The Yaudheyas and Arjunayanas both are said to have won "victory by the sword". The Datta dynasty and Mitra dynasty soon followed in Mathura. The Indo-Greeks ultimately disappeared as a political entity around 10 AD following the invasions of the Indo-Scythians, although pockets of Greek populations probably remained for several centuries longer under the subsequent rule of the Indo-Parthians and Kushans.
In 326 BC, Alexander the Great conquered the northwestern part of the Indian subcontinent as far as the Hyphasis River, and established satrapies and founded several settlements, including Bucephala; he turned south when his troops refused to go further east. The Indian satrapies of the Punjab were left to the rule of Porus and Taxiles, who were confirmed again at the Treaty of Triparadisus in 321 BC, and remaining Greek troops in these satrapies were left under the command of general Eudemus. After 321 BC Eudemus toppled Taxiles, until he left India in 316 BC. To the south, another general also ruled over the Greek colonies of the Indus: Peithon, son of Agenor, until his departure for Babylon in 316 BC.