In 1921, Decla Bioscop becomes part of Universum Film AG (Ufa), which was founded in 1917. In order to accommodate the production of Metropolis, Ufa builds a sound stage still in use to this day, "Marlene-Dietrich-Halle" in 1926.
By building the "Tonkreuz", Germany's first sound stage, the studio ushers into a new era, producing the first German language sound film in 1929, Melody of the Heart starring Willy Fritsch.
In 1930, the studio celebrates the premiere of The Blue Angel by Josef von Sternberg starring Marlene Dietrich and Emil Jannings.
Due to Joseph Goebbel's decree that entertainment is part of the war effort, the German film industry keeps production going until the last days of the war in 1945. In August of 1945, the studio lot becomes subject to allied law and is occupied by the Soviet military administration until 1947.
From 1946 to 1990, DEFA produces more than 1.200 feature and television pictures of various artistic and political color, including Das kalte Herz (1950), Der Untertan (1951), Die Geschichte vom kleinen Muck (1953), Nackt unter Wölfen (1963), Das singende, klingende Bäumchen (1957), Das Kaninchen bin ich (1965), Spur der Steine (1966), Die Legende von Paul und Paula (1973), Solo Sunny (1980), and Coming Out (1989). In 1976, Jakob der Lügner (Jacob the Liar) becomes the only GDR film production to ever be nominated for an Academy Award.
In August 1992, Treuhand sells the former DEFA studios in Babelsberg to the French corporation Compagnie Générale des Eaux (that would later become Vivendi Universal).
Over the next 12 years, the parent company invests around €500M in the film studio, thus creating the infrastructure that allows the studio to prevail in today’s market.
In 2009, Quentin Tarantino and Roman Polanski – two of the world's most famous directors – work in Babelsberg. The films Inglourious Basterds and The Ghostwriter receive international acclaim and recognition after their cinema releases.
In 2010-2011, Studio Babelsberg produces films such as Unknown, The Apparition, Hanna, Chicken with Plums and The Three Musketeers 3D.