Arado started working on the E 240 project in 1938. It was to have the latest technology by using aerodynamic devices, pressurization, and a tail mounted airbrake. However instability of the aircraft plagued it throughout its development and operational career.
The first two prototype, the Ar 240 V1 and Ar 240 V2, proved to be very unstable. This lead to a redesigned prototype, the Ar 240 V3.
The Ar 240 V4 had the dive bombing equipment installed and proved successful, but it was thought that the reconnaissance version was more important.
The Ar 240 C-2 night fighter had remote controlled dorsal and ventral barbettes. It used a FuG 202 Lichtenstein radar array.
In December 1942 the program was halted.
Early models had the DB 601 engines installed with later models having the DB 603 or DB 605 engines.