Douglas proposed a number of modifications designed to improve the performance of the B-18. Initially considered a redesign, the XB-22 featured 1,600 hp Wright R-2600-1 Twin Cyclone radial engines. The complete B-18 redesign was considered promising enough by the USAAC to alter the original contract to produce the last 38 B-18As ordered under Contract AC9977 as the B-23. The design incorporated a larger wingspan with a wing design very similar to that of the DC-3, a fully retractable undercarriage, and improved defensive armament. The B-23 was the first operational American bomber equipped with a glazed tail gun position. The tail gun was a .50 calibre (12.7 mm) machine gun, which was fired from the prone position by a gunner using a telescopic sight.
The first B-23 flew on July 27, 1939 with the production series of 38 B-23s manufactured between July 1939 and September 1940.
While significantly faster and better armed than the B-18, the B-23 was not comparable to newer medium bombers like the North American B-25 Mitchell and Martin B-26 Marauder. For this reason, the 38 B-23s built were never used in combat overseas, although for a brief period they were employed as patrol aircraft stationed on the west coast of the United States. The B-23s were primarily relegated to training duties, although 18 of them were later converted as transports and redesignated UC-67.
After World War II, many examples were used as executive transports, with appropriate internal modifications, and as a result a large number have survived. With its wartime experience with the type, GE bought and used five of them. Howard Hughes (among others) used converted B-23s as personal aircraft.