The Quixote Foundation was established in 1997, originally in Madison, Wisconsin, by its founder and president, Arthur Stuart Hanisch, commonly known as Stuart Hanisch. The organization was originally structured to continue his personal philanthropic tradition based on a progressive world view, and its initial incorporators and officers were Arthur Stuart Hanisch, his son Erik M. Hanisch as Vice President and Treasurer, and investment advisor Paul R. Soglin as Secretary. From its start, the Quixote Foundation centered around the goals and motivations of the Hanisch founding family, with a mission "To promote the health and well-being of the planet earth and all of its inhabitants." Its first gift, on June 15, 1998, was a $25,000 grant to the Wilderness Society for protection of a 1.7 million acre wildland ecosystem. Early philanthropic activities focused heavily on local, Wisconsin-based projects, while simultaneously incorporating regional and international giving.

In 2002, Stuart Hanisch passed away, shifting the timeline and focus of the organization, which moved its base of operations to Seattle, Washington. His son Erik and daughter-in-law Lenore Hanisch took over operations of the family foundation, ultimately adopting a limited-life policy, with strategic plans in place to spend the Quixote Foundation's entire philanthropic budget. This resolve to hold the foundation to a 20-year life span took on new life as a "Spend Up" strategy within the organization's vocabulary. This policy dictated much of their activities and funding choices from 2010 until the Quixote Foundation officially shut down operations in 2017.

The Quixote Foundation self-describes its mission as supporting five major fields of philanthropic interest: 1) independent media and media reform; 2) voter rights and election integrity; 3) reproductive rights and related women's issues; 4) environmental equity, protection, and preservation; and 5) equality and civil rights. Major grantees receiving continued support over the years include Art Resources International, the Center for Media Justice, Media Democracy Fund, the Election Verification Network, the National Wildlife Federation, Planned Parenthood, Sightline Institute, the Wilderness Society, and the Women Donors Network, among many others. The organization also funded many local programs and national initiatives, sometimes with one-time grants for specific projects (for example, the "Girl Neighborhood Power" project of the Atwood Community Center in 2000).

The Quixote Foundation relied on close-knit relationships among its constituents, dubbed "Team Q" internally. Their major activities over the years focused around the activities of its Board of Directors, including Founder Stuart Hanisch until his death; Board President Erik Hanisch; Board Member and Senior Director of Engagement and Partnerships Lenore Hanisch; and Board Member and Executive Director June Wilson. The Quixote Foundation worked regularly with consultants Keneta Anderson, Bryan Jeffrey Graham, and Zarina Parpia, and its activities and meetings usually included a number of "core grantees."

The foundation's name is a nod to Don Quixote by Miguel Cervantes, described on their website as "a rash romantic knight who travels the country taking on causes whose importance only he understands." Corporate meetings and literature often revolved around the theme of tilting at windmills and the motto, "Free, Fair, and Healthy," with a mission of seeing "free people in fair societies on a healthy planet." Brand associations and the tagline "practice idealism" were designed to encourage putting values into action, countering the idea that practice and idealism were two separate activities. The "Don" icon found on promotional literature derives from a metal Don Quixote statue belonging to Stuart Hanisch, with its sentimental echoes and humor attempting to express "the fun and open side" of the Quixote Foundation.