The Language Institute was established by the Law on the Language Institute (Official Gazette SR BiH No. 4/72). In 1977, the Language Institute was joined by the Literature Institute of the Faculty of Philosophy in Sarajevo in accordance with the Law on the Language and Literature Institute (Official Gazette SR BiH, No. 20/77 and 40/85).

On the basis of the consent of the Parliament of the SR BiH on May 13, 1991, the Work organization The Language and Literature Institute has split into the Language Institute and the Literature Institute, which continued to perform their activities as independent institutions. The Law on Scientific Research Activity (Official Gazette of SR BiH, No. 38/90 and Official Gazette R BiH, No. 6/93), which is applied in the Federation of Bosnia and Herzegovina until the adoption of the relevant regulations, pursuant to Article IX. 5. (1) of the Constitution of the Federation of Bosnia and Herzegovina, prescribes that the Parliament of the Republic of Bosnia and Herzegovina may establish a public scientific institution in the state ownership for conducting fundamental and applied research. Articles 37 and 38 of the aforementioned law stipulate that the Language Institute, Literature Institute, as well as other scientific institutions: Institute of History, Oriental Institute, Institute for Research of National Relations and the Academy of Sciences and Arts of Bosnia and Herzegovina continue to work as scientific institutions. Republican Public Scientific Institution The Language Institute is of the state ownership and performs its activity in the public interest.

This institution was financed from the republican budget through the Republic Public Fund for Science until 1994. Since 1994, after the adoption of the Law on the Cessation of Work of Funds and Institutions (Official Gazette of the RBiH No. 27/93 and 13/94), this scientific institution was financed from the budget through the Federal Ministry of Education, Science, Culture and Sports, and since 1996, this institution was financed from the funds of the Sarajevo Canton budget.