Indiana is both a leading agricultural and industrial state. The economy was almost entirely agricultural until after the Civil War. By 1900, rapid industrial development had tripled the number of factories in the state to 18,000, employing a total of 156,000 workers. During that period, the mechanization of agriculture resulted in the doubling of the number of farms to a peak of 220,000 in 1900.

Metals and other manufacturing industries surged during and after World War I, lagged during the Great Depression of the 1930s, then surged again during and after World War II. Between 1940 and 1950, the number of wage earners in the state nearly doubled. Job opportunities brought in many workers from other states and encouraged the growth of labor unions.

The state's industrial development in Indianapolis, Gary, and other cities has been based on its plentiful natural resources—coal, natural gas, timber, stone, and clay—and on good transportation facilities. The northwestern corner of the state is the site of one of the world's greatest concentrations of heavy industry, especially steel. Indiana produced 24% of the nation's steel in 1999, the most of any state. Until the end of the 20th century, the manufacturing sector continued to grow in absolute terms (15% between 1997 and 2000), and continued to account for about 30% of the Indiana's total output. In the national recession of 2001, however, manufacturing output fell 9.2%, and manufacturing fell to 27.2 of total output. The Indiana economy experienced 8.1% growth in 1998, which moderated to 2.9% in 1999 and 4.7% in 2000, and then plunged to 0.1% in 2001. Job creation, which had averaged over 2% a quarter since 1993, became negative (layoffs exceeding job creation) by the second half of 2001, and remained negative throughout 2002. Although the unemployment rate remained below the national average, Indiana had the highest foreclosure rate on conventional family mortgages among the states in 2002.

Indiana's gross state product in 2001 was 16th largest among the states at $189.9 billion, to which manufacturing contributed $51.6 billion; general services,$34.3 billion; trade, $29.3 billion; financial services, $27.2 billion, government, $20.1 billion, transportation and public utilities, $14.4 billion, and construction, $10 billion. The public sector constituted 10.6% of gross state product.