PALNI was founded in 1992 as the first state-wide automated resource sharing network for private academic libraries. Initial funding for PALNI's shared library automation system and network was provided through a 3-year, $4.9M grant from The Lilly Endowment.

In addition, The Endowment awarded PALNI a follow-up $2.6M grant in 2002 to further upgrade and enhance its shared system and resource-sharing network. Annual operating costs are shared among the 24 participating small college and seminary libraries throughout the State of Indiana.