Caroline Records started out as a subsidiary of Richard Branson's Virgin Records label during the early to mid 1970s. The label originally specialized in putting out budget price LPs by mainly progressive rock and jazz artists generally not considered to have a great deal of 'mainstream' or commercial appeal, but were often however creatively of great interest.

The first release was Outside the Dream Syndicate by Toni Conrad and Faust in 1973. The original label was a photographic style variation on that of the Virgin label's "Twins" logo designed by Roger Dean.

Both the U.S. and U.K. branches of Caroline Records are subsidiaries of Caroline Music, which includes Caroline Distribution and is in turn owned by EMI. Caroline has or had a number of subsidiary labels including Astralwerks, Gyroscope, Caroline Blue Plate, Rocks the World, Scamp, and Passenger.