The basic premise of applied psychology is the use of psychological principles and theories to overcome problems in other areas, such as mental health, business management, education, health, product design, ergonomics, and law. Applied psychology includes the areas of clinical psychology, counseling psychology, industrial and organizational psychology, occupational health psychology, human factors, forensic psychology, engineering psychology, as well as many other areas such as school psychology, sports psychology and community psychology. In addition, a number of specialized areas in the general field of psychology have applied branches (e.g., applied social psychology, applied cognitive psychology).

One founder of applied psychology was Hugo Münsterberg. He came to America from Germany, and, like many aspiring psychologists during the late 19th century, originally studied philosophy. Münsterberg had many interests in the field of psychology such as purposive psychology, social psychology and forensic psychology. In 1907 he wrote several magazine articles concerning legal aspects of testimony, confessions and courtroom procedures, which eventually developed into his book, On the Witness Stand. The following year the Division of Applied Psychology was adjoined to the Harvard Psychological Laboratory. Within 9 years he had contributed eight books in English, applying psychology to education, industrial efficiency, business and teaching. Eventually Hugo Münsterberg and his contributions would define him as the creator of applied psychology. In 1920, the International Association of Applied Psychology (IAAP) was founded, as the first international scholarly society within the field of psychology.

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