The AICW was jointly developed by the Defence Science and Technology Organization (DSTO), Tenix Defense Systems and Metal Storm in the early 2000s, with most of the funding for the project received through the Capability and Technology Demonstrator program started by the Australian government. The weapon was tested a few years later to positive results. Following the successful completion of the Capability and Technology Demonstrator program, the AICW's development was halted.
The AICW provided a soldier with both 5.56mm rounds and 40mm grenades at his disposal in a compact weapons package, along with the ability to fire multiple grenades without having to reload, and the ability to switch between both rounds without changing sights, trigger or stance, which helps to reduce reaction times and increase versatility on the field.
The grenade launcher portion used Metal Storm's patented stacked munition technology, which removed the need for conventional loading. The stacked munition technology of the grenade launcher was supposed to make the weapon more compact and much lighter; in reality, the AICW was actually heavier than the similar XM29.