The AC series originated in 1940 when the Australian government decided to take precautions against the supply of tanks from Britain being interrupted by enemy action. The Japanese Empire was a major threat at the time and maintaining supply from Britain might not be possible later. The alternative was to manufacture tanks in Australia itself. Australia was lacking in tank design knowledge and experience and decided to send a man to America to access the Medium Tank, M3. Britain dispatched Colonel W.D. Watson to act as an adviser.
The AC-Series was to be based on the lower hull of the M3, with the upper hull and turret being closer to the Cruiser VI, Crusader. In 1942 the Australian Cruiser Mk I (AC I) was designated "Sentinel". It was manufactured by the New South Wales Railway Company. Fabrication took place at Chullora Tank Assembly Shops with serial production vehicles emerging in August 1942, the premises also being used as a testing ground. The design used existing parts where available, which were simplified where necessary to meet machining capacity in Australia. The hull was cast as a single piece, as was the turret.
The AC III was an improved design compared to the AC I, with better armour protection and increased firepower. The main gun was increased to a Royal Ordnance QF 25 Pounder (87.6mm) short-howitzer. The turret was larger than the previous AC I.