In 1932 an order from the Army was received by Demag AG of Wetter for an all terrain tractor that could tow a ton. Later, after the SdKfz 251 appeared, the Heer had requirements for three vehicles that were to be smaller. One was to be a reconnaissance vehicle that could carry half of a squad. The second was to be an ammunition carrier which became the SdKfz 252. The third was to be an observer vehicle for Sturmgeschütz battalions.
The design of the SdKfz 250 was based on the 1 ton artillery tractor, SdKfz 10, that had one less road wheel on each side. With the success of the SdKfz 251 it was decided an armored superstructure could be added to the SdKfz 10.
The front axle was not powered which contributed to fatigue in the driver. When a hard turn was needed the steering wheel caused not only the front axle to turn, but would cause the brakes in the tracks to help with steering.
The engine provide power to only the tracks and not the front wheels.
With its experience with the SdKfz 251 superstructures, Büssing-NAG of Berlin was to design the armored superstructure for the SdKfz 250. It was to have 14.5 mm in front, 8 mm on the sides, and room for the commander, driver, and four soldiers.
The SdKfz 250 superstructure was assembled from a front piece, for the engine, and a back piece that were bolted together during final construction.
The driver sat on the left side where he had a vision port, with shatter proof glass to look through.
The commander also had a vision port on the right side where he usually had the Fu Spr.Ger.f radio set.
On the left was a bench for three soldiers and in the rear center was one seat in front of the gasoline tank. The right side had a storage box. Most often, the soldiers would exit out the top of the SdKfz 250 when in action instead of through the rear door.
The SdKfz 250 had a 7.62 mm machine gun, with a shield, mounted on the roof of the driver's compartment. On the rear wall was another mount for a machine gun to be used for anti-aircraft fire.
In 1943, along with the SdKfz 251, it was decided to update the design to simplify production. The superstructure was simplified in the number of armored plates necessary to construct it.