The National Foundation on the Arts and the Humanities Act was passed by Congress and signed into law by President Johnson on September 29th, 1965. Alongside the National Endowment for the Humanities (NEH), the Act established the National Endowment for the Arts (NEA) as an independent federal agency devoted to funding the arts and arts education across the country. The Act's Declaration of Purpose from Congress states that, "the practice of art and the study of the humanities requires constant dedication and devotion and that, while no government can call a great artist or scholar into existence, it is necessary and appropriate for the Federal Government to help create and sustain not only a climate encouraging freedom of thought, imagination, and inquiry but also the material conditions facilitating the release of this creative talent."

In 1966 the NEA began awarding grants to institutions, programs, and individuals in eleven categories: Architecture, Arts and Education, Costume and Fashion Design, Creative Writing, Dance, Drama, Folk Art, Music, Public Media, Variety of Art Forms, and Visual Arts. In its first two years, the NEA's focus on literature largely centered on supporting writers through individual grants and programs that offered low-rent studios for living and working, as well as the creation of the annual American Literary Anthology, which awarded a range of prizes to authors selected for publication. In 1967 the NEA established the National Institute of Public Affairs Coordinating Council of Literary Magazines. By 1968 the NEA's support for literature had nearly doubled to include grants to young writers and to college and university literary festivals. That same year, the NEA created the Association of American University Presses, Inc. to support the promotion and funding of publications by university presses and established a program of awards to be given to independent literary and art presses (Diane di Prima's Poets Press and Jonathan Williams' Jargon Books were among the first recipients of this $60,000 award).

In 1975 the National Endowment for the Arts expanded their support for small non-commercial presses, art presses, literary magazines, and university presses through the creation of the Arts Endowment's Literature Program. This program provided a publishing pathway for avant-garde, underground, and marginalized presses and writers who were often overlooked by commercial mainstream publishing. Recipients of the Literature Program grants were selected by the program's Literature Advisory Panel, a rotating panel of some of America's most acclaimed writers and cultural critics, with the first advisory panel including Toni Morrison and Studs Terkel.

On page 48 of the National Endowment for the Arts Annual Report of 1975External the NEA details the impact of these groundbreaking grants writing, "Although works by new writers often are published in small literary magazines, it has been difficult, sometimes impossible, for such writers to publish in single volumes on their own. For this reason, the Literature Program's small press grants represent a significant breakthrough for many talented writers who are only beginning to be recognized." The 1975 Annual Report also notes that as a result of receiving Literature Program grants, over 250 American writers and poets were published in book form for the very first time.