Developed by Capcom Production Studio 3, the concept of a prequel to the original Resident Evil first blossomed shortly after the Nintendo 64's announcement in 1995, when the original game itself was still in development.Resident Evil Zero was originally intended to be sold on a CD on the Nintendo 64DD peripheral, with the possibility of an N64 cartridge-based version also being considered in 1997. The Nintendo 64DD was of great interest at the time due to the discs' ability to hold 64MB of data; early Nintendo 64 cartridges only contained 4MB of data, with 32MB games being more popular later in its life (Resident Evil 2 was one of only three Nintendo 64 games to even require a 64MB cartridge). Possibly as a result of the 64DD's delays, Production Studio 3 later chose to shift development away from the 64DD altogether and focus only on a cartridge-based game; their explanation was that the standard cartridge (32MB) would be more than capable in handling the planned item dropping and the unique 'partner zapping' systems proposed for the game. The vastly superior loading times (5-50MB/second versus 1MB/second) were also cited.
It wasn't until January 1999 that the game itself was officially announced. The then-Flagship president Yoshiki Okamoto had previously let it slip to the gaming magazine "Deneki N64" that the game was in development, though only said that it was for the Nintendo 64. Okamoto later talked to Famitsu about Zero in February 2000, revealing that some of the "EX files" for the recent Resident Evil 2 N64 port gave information regarding the backstory, but refused to give an answer to Famitsu's enquiry as to the identity of a man - Billy Coen - seen with Rebecca in an early screenshot. At that time the game's release date was expected to be around July 2000.
Gameplay for Resident Evil Zero was first unveiled during the Tokyo Game Show in Spring 2000. Only footage of the train stage, the Ecliptic Express, was used because the quality of the other stages was not considered good enough for preview. While gameplay looked promising, there were slowdown issues when under attack from zombie dogs, possibly hinting at RAM-issues with the console.
While it was hinted earlier that the game would be released at the end of the year, the game's status in January 2000 as being a mere 20% complete suggested otherwise, though Hideki Kamiya, Resident Evil 2's director, believed it to be closer to 10%. Production of the game had already begun to slow down by spring when it became clear that the game could not be supported on a single cartridge as the development team believed. Production stopped entirely when it was decided that any attempts to make more room (i.e. deleting parts of the game) were not economically viable.
When Nintendo's Dolphin (the codename for the GameCube) was announced in mid-2000, IGN predicted - accurately - that the game, although recently featured in a playable form at May's E3 expo, would be put on hold, believing Capcom to be awaiting specifications as to the coding to support this new console. By now both the public and Capcom were aware that Zero was no longer in large-scale development.
↑"三並達也×三上真司 独占対談" (in Japanese). ハイパーカプコンスペシャル (Sony Magazines Inc.). June 11, 2002.