At first, the Sega CD was a CD tray unit that sat under the console. The Sega CD 2 was a smaller, cheaper top loading drive that plugged next to the Sega Mega Drive.

The Sega Mega-CD was released first in Japan in 1st December 1991. Its retail price was about ¥49,800. Initially, it was a great success because of the inherent advantages of CDs (high storage capacity and the low cost of media). The fact that it had a nice RPG catalogue also helped.

The system sold 100,000 units during the first year of release in Japan. However, cost issues prevented more units from being sold. Sega of Japan did not speak to Sega of America about their Mega-CD plans for that market until a few months later.

The Sega CD had been announced at the Chicago CES on November 1992. Early reports had suggested that hardware in the system would allow it to display more on screen colours (from a larger palette) than the Sega Genesis or the Super Nintendo, which was an important technical concern for consumers.

In the end, the Sega CD failed to convince North American gamers, mostly due to the cost of the console, and the lack of any hardware advancements. There just was not enough value for the price. Moreover, the game experience was little improved. Players came to have high expectations for the add-on, and Sega even promised that the Sega CD would allow a higher colour palette than the Genesis. However, the end result was somewhat lacklustre compared to expectations.

Graphically, most standard 2D platform games and RPG's looked little different from an average Genesis 2D game.

Sound was likely to be better if it included some CD audio tracks, but on the average, conventional games looked the same. Sega wanted to showcase the power of the Sega CD, and so focused on the "FMV" games rather than importing "extended" games that only expanded ordinary games by taking advantage of the extra storage space of the CD media. Sega insisted on licensing and producing primarily "full motion video" games similar to earlier laserdisc games, that were universally panned by game reviewers.

The single speed CD drive added load times to all games, and the 64-color graphics and underpowered processor (for video rendering) made these full-motion games look terrible. One particularly infamous result of the single speed CD drive and its subsequent load times came in the form of Mortal Kombat CD, which was widely criticized due to that fact the certain moves, particularly the games popular "fatalities", would not perform until after a notable lag between the execution of the move and its actual on screen animation.

Another problem was that much of the Sega Mega CD library consisted of quick upgrades of existing Genesis games. Most of them just had some extra FMV scenes and an enhanced soundtrack, but the game is still the same. However, some games such as Earthworm Jim or Spider Man vs. the Kingpin added some extra levels or made some game changes. (Spider Man vs the Kingpin in particular made many changes, which drastically restructured the game, making it somewhat non linear, and adding animated cutscenes.) The console also had one standard Sonic game, simply titled Sonic CD. While the game is generally well regarded as a solid, fun Sonic game, the CD platform offered little different in the way of gameplay, except for some animated cutscenes and a slightly larger number of levels.

Despite a somewhat lackluster library of games, the console produced two very famous titles. The Sega CD had the Lunar series, which, despite the relatively narrow circulation the two titles on the Sega CD received, went on to be critically acclaimed and became a cult classic, with both games remade for the PlayStation in the late nineties and the Nintendo DS in 2005. The same company that released Lunar, Working Designs, also released another RPG for the platform, entitled Vay. While it received generally positive reviews, the game was not as popular as the Lunar titles, both of which can fetch high prices on the internet.

In the United States, the Sega Mega CD was considered a failure due to its high price, low sales, few hardware upgrades and general confusion with the Sega 32X, another Genesis peripheral offered. Due to Sega of America's lack of support for the Sega Mega CD and 32X, many consumers lost their trust in Sega and it can be said that Sega never recovered from this.