The Phantom is a design originally tested in an Imperial program under Lord Vader shortly before the Battle of Endor but never produced due to Rebels infiltrating the base, destroying the prototypes and the facility. The Emperor however had moved at least one of the prototypes to his cache at Wayland so the model was recovered. It was then found that the cloaking devices on the prototypes were flawed, the cloak effect tended to flicker on and off, and was prone to outright failure. Later versions hence tend to use the more conventional "Decoy Beam", which provides them with a high level of stealth but not invisibility.

The Phantom was based upon the far older V-38 Sentinel (alternatively "TIE Sentinel") because that craft was one of the few models with enough space and a strong enough reactor to support the extra drain of the cloaking devices. For testing purposes it was equipped with a larger two-man cockpit of Corellian design, which affected the hull integrity slightly and removed the standard double TIE laser cannons. To cover these drawbacks the Sentinel's wing-tip ion cannons were replaced by laser cannons, which again allowed for a shield system because of the lower energy use.

The Emperor's Hammer Shadow Works briefly experimented with a derivative of the Phantom, designated the Phantom Mk.II, but similarly found the overall design objectives unachievable.

If the cloaking device had proved successful, a completely new craft design likely would have been made using the newer engines and systems developed for the TIE Defender and TIE Advanced, however the Phantom represented the end of the line for the cloaking effort.