There have been cigarettes with filters almost as long as there have been cigarettes. In 1883 or 1884, Dr. Scott's Electric Cigarettes may have been the first. They had a recessed filter on one end, and a match head on the other. So, you could strike one end and light the cigarette. It was not called a filter, it was called a 'no nicotine mouthpiece.' In fact, this is what filter cigarettes were primarily called until the 1940s.
Until the late 1920s, filter cigarettes had to be rolled by hand, no machine had been invented to manufacture them. So, they were rare and expensive. In Britain, where more companies rolled their cigarettes by hand, filtered versions were more common, beginning c1900.
The first machine made filter was duMaurier, which went on sale in Britain in 1929. They were also sold in Canada. In the US, Parliament was offered in filtered form (no nicotine mouthpiece) beginning in 1932.
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In the 1950s there were numerous medical studies being conducted that conclusively linked smoking and lung cancer. The reaction from the public health offices, social awareness agencies and the community led to the cigarette manufacturers response of mass-marketing the filter-tip cigarette. The initiative behind the filter was to screen out tar and nicotine to make cigarette smoking safer. This innovation in the cigarette industry led to the filter tipped cigarettes dominating the market by the 1960s even as they continued to be a specialty item.
The first company to introduce a filtered cigarette was the Aivaz Tobacco company in 1927. The filter would catch on and nearly a decade later, all cigarette companies featured filters on their cigarettes.