There is some uncertainity around the first registered individuals. Those were first registered under the name "Istrian Coarsehaired Hound" in Slovenia in 1921, and parents of those were written in either as unregistered or registered as "Celtic Hound". But what were the "Celtic Hound"? Cwn Annwn, the dogs of the otherworld of ancient Welsh, they were not. The name is derived from the works of Byzantine author Arrian, who describes the dogs of the Celts, as at that time some tribes lived around the western borders of the Byzantine Empire - those dogs were shaggy, floppy eared, and had (scent)hound voices, in contrast to the prevailing hunting dogs of the classical period, which were mostly like today's "Mediterannean hounds" (Pharaon, Ibbizan, Circ...whatever-of-Etna, in general prick-eared and more sight-houndy). The name "Celtic Hound" clung on a long time (untill after the WWII) for Bosnian Baraks, although the name "Barak" was noted quite early as the dog breeding histories go, in the mid- 1800-es. Anyway, it is strange to imagine the Slovenian breeders crossing Baraks (which are very variable in colouring even today, and were even more so 100 years ago) with other dogs of unknown origin and getting those pure white-orange recessive-coloured Istrians. Much more likely is that anything that got wire coat, regardless of colour, got at some time in the early 1900-s registered as "Celtic Hound". Surely some were Baraks, and some Istrian Wirehaired, and here we have the descendants of the latter. More complicated, some of the Baraks first described were predominantly white with a bit of yellow. We cannot know today if this was recessive yellow, as in Istrian hounds, or dominant yellow, as in Styrian. Probably both, and in later days it's likely that the recessive yellows were re-registered as Istrians. Indeed, the great similarity between these two breeds can be easily noticed even today. Color being only the minor element, the main difference is in that Baraks are more able to tend for themselves, courageous but self-headed, and Istrian Wirehairs more biddable but also more dependable. (To those familiar with computers, they might be compared to two boxes, same CPU, same architecture, one a gray box running under linux-unix, another in a white one running under something more user-friendly :-) This difference may stem from the fact that breeding white-and-orange recessive colouring is very easy to keep "pure" as any unintentional outcrossing shows as pups of another colour, thus it is logical to suppose that the lines were bred pure even long time before anybody thought about keeping pedigrees, while almost anything can be crossed into Baraks and it won't show, the traits and colouring of Barak being dominant to almost anything except all-black curly hair. In other words, Istrian Wirehair is somewhat more advanced along the process of domestification, which can be a good thing or not - domestification may also bring less resistance to diseases, smaller litter sizes etc, but happily this had not sprung up (yet?) in our breed.
About the year 1927, the Slovenian breeders (looks like the only preserved registers from this time are the Slovenian ones) had been already mating dogs that were close relatives, even brother to sister, so by this time they had sort of painted themselves into a corner and the breeding reached a crisis. This was only overcome by eventually bringing more dogs over from Croatia, but before that, as is often emphasized, a Basset Grifon Vendeen was crossed in. It is highly likely that this happened accidentaly, as if it was intentional, a briquet would have been used. The result of this mating was that one of the grandsons of the basset was entered at shows and used in breeding - for all that anyone can tell this dog looked like a full blooded Istrian, and was shown as such. The overall influence of the vendeen "blood" would be from this experiment much less than 1% and of course there's no worry, the dominant traits like short legs and other colour than orange cannot come back not even out of thin air. This outcross is however often eronneously quoted as if it is the very creation of the breed.
Up untill that time there was some reports about hounds of Bosnia but not much had been written about dogs in Croatia, we only know that from where the Slovenian breeders were buying their foundation stock, they were bred in two provinces, in Istria and in central hilly part of Croatia (Lika and Gorski Kotar). In Istria no records of Istrian hounds were kept for a while as the province was during this time (between the two wars) under Italian jurisdiction.
Meanwhile the Bosnians continued to breed the wirehair hounds that were described a couple of decades or so before, and not all of them were the colour of what we recognize today as Baraks, many were white with yellow/orange/red, exactly the colour of Istrians. Some were predominantly white, some were yellow/orange with around 1/3 of white, but that's another type and another story.
An important moment in the development of the breed was when it was decided that there will be no more hunting with unregistered dogs. This was announced in , and by  all indigeneous hounds were to be registered. So in two years [a number of] ICs got entered into the books, this time not only in Slovenia but in their domicile country as well. There were not any differences noted between the four lines: original Istrian, Slovenian, central Croatian and some (white-orange) of what was previously Barak, although, contrarily, there were at that time noticable differences in size and type in Shorthair Istrian hound.
After that the breeding progressed for about three decades in a way one would expect, albeit without much pomp. The books were closed in  but opened again in , to be closed again in 1985. Meanwhile the breed improved, as, well, expected. The wooly coat is no more. No more severe bent X-legs and twisted backthrown ears either. Some lines performed well at tracking, other excelled at hog trials. The breed was common around shows in what was then Yugoslavia, but was unfortunately rarely if ever shown abroad and never acquired any international popularity. This changed with the breakdown of Yugoslavia: there was a dispute about several breeds regarding whoom they "belong to" (as if a genome can be owned, and by a nation, at that) so there was an upsurge in the numbers entered into international shows, by both Croatian and Slovenian breeders. In Croatia the books opened again at the end of the last war, and they are still open as of this date, but hardly any are newly registered any more. In 2000 FCI decided that it is a "Croatian breed", whatever the meaning of the phrase. Luckily the popularity in Slovenia did not suffer as a result of this decision. In Bosnia, where scenthounds are particularly popular, they are apearing at shows in some numbers too. In general, the outlook is good.