It started in 1919 when the Society for the Rise of Kurdistan created the flag in Istanbul. They used it to represent the Kurdish nation at the Paris Peace Conference.
It was first used in the Ararat Rebellion, when the Xoybun party used the tricolor flag. However, it often had a sun with more rays than usual.
When the Republic of Mahabad was officially declared in Iranian Kurdistan, the flag was placed in the city square on January 22, 1946. It used the same flag, but the sun was surrounded by wheat, a mountain and a pen.
Before the republic fell, Qazi Mohammed famously handed the flag to Mustafa Barzani, asking him to keep it safe.
In the late 1990s, the KRG wanted to standardize the flags colors and dimensions, to make it more formal. They fixed the number of sun rays to 21 rays, and standardized the dimensions to 2:3.
In 2009, the Kurdistan Parliament officially made December 17th the Kurdistan Flag Day, to commemorate the day it was raised in Mahabad.