The origins of the Type 97 lay in a prototype diesel-engine version of the Type 94 Te-Ke developed by Hino Motors in 1936.Although the prototype had a more powerful engine and larger gun, initial trials were not successful and the Japanese Army demanded changes before acceptance. Hino responded with a modified prototype in November 1937, in which the engine was moved towards the rear of the chassis. This design was accepted and full production began in 1938.
Although the chassis was similar in appearance, the design of the Type 97 was different from the Type 94 in several significant areas. The engine was moved the rear and the gun turret (and commander) moved to the middle of the tankette, with the driver located to the left side of the hull. This gave the two men a better position to communicate with each other. As with the Type 94, the interior was lined with heat absorbing asbestos sheets.
The main armament was the Type 94 37 mm tank gun, with 96 rounds, barrel length of 136 cm (L36.7), EL angle of fire of −15 to +20 degrees, AZ angle of fire of 20 degrees, muzzle velocity of 600 m/s, penetration of 45 mm/300 m, which was also the main armerment used by Type 95 Ha-Go. However, due to shortages in the production of this weapon, most vehicles were fitted with a 7.7 mm Type 97 machine gun instead.
The Type 97 replaced the Type 94 on the assembly line in 1939, it was primarily assigned to reconnaissance regiments,and, as with US Army tanks prior to 1941, was not designed to engage enemy tanks. Because it was a reconnaissance vehicle, built for speed, and not direct combat, its hull and turret were designed for only two crewmen; leaving the tankette commander to load and fire the main gun. As with most tankettes it was severely deficient in armor protection, and was an easy prey for any "anti-tank weapon".