The Indiana University Department of Folklore and Ethnomusicology jointly administers the Folklore Institute and Ethnomusicology Institute and offers undergraduate and graduate degrees in both fields. The Folklore Institute at Indiana University began as an eight-week program in the summer of 1942 under the directorship of Professor Stith Thompson. During the program, residential and visiting faculty taught courses on a number of topics, including field collecting and recording, the folk tale and similar forms, folk music and songs, and Native American folklore.

The Folklore Institute grew into a stable research branch of Indiana University's College of Arts and Sciences in 1949 and received departmental status with an independent faculty in 1963. In 1977, the Folklore Institute was named an affiliated institute of the newly designated Department of Folklore.

While ethnomusicology programming began at Indiana University as early as 1948, the field first gained official status at the university through the introduction of the Ethnomusicology Program under the Department of Folklore in 1982. In 2000, the Ethnomusicology Institute was established. That same year, the administrative structure governing folklore and ethnomusicology was reorganized, and the Department of Folklore officially became the Department of Folklore and Ethnomusicology, with the Folklore Institute and Ethnomusicology institute as units within the department.

Since 2001, the Department of Folklore and Ethnomusicology has coordinated annual, ghost-themed campus tours known as "ghost walks." These tours take place during the Halloween season and feature legends tied to well-known campus and Bloomington spaces. Students, staff, and faculty from the department act as organizers, storytellers, and performers for the walks. Past faculty and staff participants include Ruth Aten, Linda Degh, and John Johnson.