In the year 2001, after the government at the time and the LTTE organization reached a peace agreement, the LTTE began violating the agreement over time. As a result, on 6th January 2006, an LTTE suicide boat attacked and destroyed the P - 476 Fast attack craft patrolling the waters near “ Koddiyar Bay ” in Trincomalee. The loss of this vessel highlighted the difficulty of maneuvering large Fast Attack Crafts like “Dvora” in shallow waters and the ease with which enemy boats could detect and attack them due to their size and noise.

On 9th November 2006, during a confrontation with the LTTE Sea Tigers in the northern seas, the P-461 and P-416 vessels were similarly targeted, reaffirming these challenges. The LTTE's small attack boats approached shallow waters near the coast, where fast attack crafts struggled to maneuver. The significant number of small enemy boats, which blended with the waves, posed an increasing threat to the Navy, as their swarm-like formation overwhelmed the larger vessels.Recognizing these issues, under the guidance of then-Commander of the Navy, Admiral of the Fleet Wasantha Karannagoda, the foundation was laid to establish a unit equipped with small boats capable of operating effectively in shallow waters. For the first time, small boats were manufactured at the boat-building facility of Sri Lanka Navy's Mahasen shipyard.

By February 2007, the first 18ft boats (Javelin) were operational, with Commodore Rohan Amarasinghe (NRX 0183) appointed as the inaugural director of the newly formed Rapid Action Boat Squadron (RABS). Initially, officers and sailors from the Harbor Defense Unit volunteered to join, followed by personnel from the Regular and Volunteer Naval Forces.

The initial training for this squadron began in early 2007. Five officers (Lieutenant N. Ranaweera NRX 1476, Lieutenant W.P. Wickramaarachchi NRI 1544, Lieutenant P.A. Piyasena NRI 1693, Sub-Lieutenant D.D.K. Dayananda NRX 1884, and Sub-Lieutenant K.J. Samaratunga NVX 5414) joined the squadron after completing training at Naval Detachments Baththalangunduwa and Pedurutuduwa. Under these officers, more boats were deployed to strengthen key operational areas, including Naval Detachments Baththalangunduwa, Pedurutuduwa, SLNS Thammenna, SLNS Gajaba, and Naval Dockyards.

Initially, the squadron operated with 18-feet boats, but 23-feet boats powered by 200-horsepower outboard engines were added to improve operations. By this time, the LTTE's Sea Tiger threat extended not only to war zones but also to economically vital ports such as Colombo and Galle. On 10th September 2008, the squadron was formally placed under a Commanding Officer, and a headquarters and training center were established in Kalpitiya. Lieutenant Commander Nalindra Jayasinghe (NRX 0699) was appointed as the first Commanding Officer. The training was systematized, covering small boat maneuvers, weapons handling, live firing, battlefield first aid, and swarm tactics for small boats.

By late 2008, the squadron came under the Directorate of Special Boat Squadrons, with Captain D.K.P. Dassanayake (NRX 0398) appointed as its first director. Under his leadership, operations expanded significantly in the Northern and Eastern regions. The squadron played a crucial role in preventing terrorist activities in shallow waters, intercepting fleeing LTTE leaders, engaging in battles with terrorists, and protecting the Jetliner ferry, which transported approximately 3,000 military personnel.

On 1st April 2009, the Rapid Action Boat Squadron Headquarters was officially established in Kalpitiya, with Lieutenant Commander Nalindra Jayasinghe as the first Officer in Charge and Lieutenant K.B.J.G.S. Madhutharanga (NRX 1569) as the first Executive Officer. During the final stages of the war, the squadron's boats led the forward defense line closest to the shore, playing a critical role in the decisive battle. In just two years, the Rapid Action Boat Squadron made a silent but significant contribution to the final victory.

The squadron, comprising small boats and unique operational tactics, became a new concept for the Sri Lanka Navy, drawing international attention. This was exemplified by the publication of an article in the prestigious defense journal "Janes Defence," detailing the squadron and its operations.