Events in the late 1920s and 1930s led Muslims to begin to think that their destiny might be in a separate state, a concept that developed into the demand for partition. Motilal Nehru convinced an "all-party" conference in 1929 to suggest changes that would lead to independence when British took up the report of Simon Commission. The majority of delegates demands the end of the system of separate electorates. Jinnah, in turn, put forward fifteen points that would satisfy Muslim interests - in particular, the retention of separate electorates or the creation of "safeguards" to prevent a Hindu-controlled legislature. Jinnah's proposals were rejected, and from then on co-operation between Hindus and Muslims in the independence movement was rare.

In his presidential address to the Muslim League session at Allahabad in 1930, the leading modern Muslim philosopher in South Asia, Sir Muhammad Iqbal (1877-1938), described India as Asia in miniature, in which a unitary form of government was inconceivable and religious community rather than territory was the basis for identification. To him, communalism in the highest sense was the key to formation of a harmonious whole in India. Therefore, he demanded the establishment of a confederation India to include a Muslim state consisting of Punjab, N.W.F.P, Sindh, and Balochistan. In subsequent speeches and writings, Iqbal reiterated the claims of Muslims to be considered a nation "based on unity of language, race, history, religion, and identity of economic interests".

Iqbal gave no name to his projected state. That was done by a group of students at Cambridge in Britain who issued a pamphlet in 1933 entitled Now or Never (by Ch. Rehmat Ali). They opposed the idea of federation, denied that India was a single country, and demanded partition into regions, the Northwest receiving national status as a "Pakistan". They explained the terms follows: "Pakistan…is…composed of letters taken from the names of our homelands: that is Punjab, Afghani, [N.W.F.P.], Kashmir, Sindh, Tukharistan, Afghanistan, and Bloachistan. It means the land of the Paks, the spiritually pure and clean."

In 1934, Jinnah returned to the leadership of the Muslim League after a period of residence in London, but found it divided and without a sense of mission. He set about restoring a sense of purpose to Muslims, and he emphasised the Two Nations Theory.

The 1937-40 period was critical in the growth of the Two Nations Theory. Under the 1935 Government of India Act, elections to the provincial legislative assemblies were held in 1937. Congress gained majorities in seven of the eleven provinces. Congress took a strictly legalistic stand on the formation of provincial ministries and refused to form coalition government with the Muslim League, even in the United Provinces, which had substantial Muslim minority, provinces such as Punjab and the N.W.F.P. The conduct of Congress governments in Muslim-minority provinces permanently alienated the Muslim League.

By the late 1930s, Jinnah was convinced of the need for a unifying issue among Muslims, and Pakistan was the obvious answer. At its annual session in Lahore on March 23, 1940, the Muslim League resolved that the areas of Muslim Majority in North-western and Eastern India should be grouped together to constitute independence plan without this provision was unacceptable to Muslims. Federation was rejected. The Lahore Resolution (forward by Sher-e-Bengal Mr. A. K. Fazal-e-Haq) was often referred to as the "Pakistan Resolution"; however, the word Pakistan did not appear in it.

An interesting aspect of the Pakistan movement was that it received its greatest support from area in which Muslims were a minority. In those areas, the main issue was finding an alternative to replacing British rule with Congress, that is, Hindu Rule.