The NIP was established in 1976 by the Ministry of Education under a resolution with main objectives to undertake social psychological research and to look into the factors which impede national integration, and thus also to discover new ways of installing a sense of nation-hood among the people of the country. In 1983, the Federal Ministry of Education decided to give NIP the status of a Centre of Excellence in Psychology and to locate it in Quaid-i-Azam University, Islamabad. As a Centre of Excellence in Psychology, the objectives of this Institute have been defined in Parliament's Act No. IX of 1976.
The Institute, while keeping its emphasis on applied research intact, substantially increased its teaching and training activities. It started its M.Phil. and Ph.D. in psychology programs, both the degrees requiring development of high level research skills among students who produce research theses on successful completion of their studies. In 1983 when the Institute was given status of Centre of Excellence at Quaid-i-Azam University, it was located in shared offices spaces in the Mathematics and Computer Sciences blocks of the University.