At the beginning of 1938, Dornier issued manufacturing specification No. 1323, recognising the need for a twin-engine bomber or long-range reconnaissance aircraft powered by Daimler-Benz DB 601B engines. In February 1938 the Reichsluftfahrtministerium (RLM - Air Ministry) authorized a testing program. Dornier worked on a version of the Do 17M with the all round vision cockpit of the Do 17Z and a fuselage having a large bomb bay capable of holding a maximum of two 500 kilograms (1,100 lb) and ten 50 kilograms (110 lb) bombs. F or reconnaissance an Rb 50/30 movie camera was fitted ahead of the front spar of the wing, and an Rb 20/30 was mounted in the second bomb bay. Jettisonable fuel tanks were carried in the forward bomb bay. For smoke-laying, the aircraft could be fitted with two Type S200 smoke generators. Dornier also envisaged the Do 217 as a naval dive bomber, in which case it was to be fitted with twin floats. In April and May 1938, the Do 217 WV1 and WV2 prototypes were produced.

The wing span was to be slightly larger than the Dornier Do 17 by one metre. Its overall span was now 20 metres (65 ft 7 in). Under the wing a retractable diving air brake was to be installed. To power the aircraft the Dornier office at Manzell had favoured two DB 601B engines which could generate 1175 PS (1159 hp, 864 kW) for take off. The Jumo 211, Bramo 329 and BMW 139 (forerunner to the BMW 801) were also considered. Which ever of the power plants were selected the RLM expected the aircraft to achieve a maximum speed of 520 kilometres per hour (280 kn) and have a weight of 10,200 kilograms (22,000 lb) fully loaded. On 5 June 1938 Dornier's overview of its design submitted to the Technical Bureau (Technisches Amt) highlighted some structural differences with the Do 17. In particular, the proposed increase in the bomb load to 1,500 kilograms (3,300 lb) had to have been a vital factor in the designs acceptance. The fuselage was to not only bigger but structurally stronger.

The RLM also had other requirements for Dornier to fill. Since 1933 the German Navy (now know as the Kriegsmarine) had pressed for the formation a Naval Air Arm. In January 1938 the Naval Air Arm Inspectorate of the Luftwaffe presented its requirements for an all metal aircraft for multi-purpose aircraft to conduct maritime operations. On 5 February 1938 it was agreed with the General Staff, which had said up until that point, the naval air attack capability of German air units was poor in multi-engine bomber units. At the Travemünde Test Centre, together with Greifswald training units and a few naval air units practiced bombing the ship Zähringen concrete bombs. The results were a two percent hit rate. Junkers Ju 87 dive bombers repeated the assault with a 40% hit rate. The superior hit rate of aircraft with dive bombing capabilities was clear. The Luftwaffe also wanted a machine that could operate as a fighter aircraft to combat enemy aircraft. Essentially they wanted a "sea Stuka" (Junkers Ju 87). The aircraft was to have floats and a range of 1,500 kilometres (930 mi) and a maximum speed of 400 kilometres per hour (220 kn).

Dornier set about designing a Dornier floatplane. For hitting targets in the air and sea surface, four machine guns would be fitted in the nose. The armament would consist of two MG 17 machine guns (500 rounds of ammunition ach) and two MG 204 machine guns (200 rounds of ammunition) as part of the Dornier Do 85P project. Heavy weapons consisted of one 500 kg or two 250 kg bombs for assaulting enemy Warships. Dornier faced competition from Heinkel and Junkers who were developing the Junkers Ju 88 and Heinkel He 115. Instead of MG 204s, MG 151 or MG FF was installed instead. Defensive armament was to consist of MG 15s to cover the aft approach. In addition the pay load could be modified to one 500 kilograms (1,100 lb) and eight 50 kilograms (110 lb) bombs or even two SC 500 bombs. The floats had a volume of 8,100 litres (1,800 imp gal) and were broken into compartments for safety reasons. Each float was to contain a fuel tank with a capacity of 500 litres (110 imp gal). The tail was to consist of the same twin stabilizer configuration as the Do 217, although a single fin was planned.

For dive bombing capability a dive brake was installed underneath the wing, like the Ju 88. The power plants were to reflect the speed requirements. It was envisaged two DB 601G engines, generating 1,300 horsepower (970 kW) or two Jumo 211s. The fuel tanks to supply the power plant were located in the wing and fuselage which had a capacity for 2,000 litres (440 imp gal) of aviation fuel and 190 litres (42 imp gal) of oil. At full weight the Dornier would reach 360 kilometres per hour (190 kn) and its effective range was to be expected to be 1,880 kilometres (1,170 mi). Its optimum range at an average cruising speed of 270 kilometres per hour (150 kn) at an altitude of 4,000 metres (13,000 ft), was 2,800 kilometres (1,700 mi). The specifications were dated 8 March 1938. The Do 217 lost out in the naval aircraft to the Ju 88 and Blohm & Voss Ha 140, as the Luftwaffe favoured these designs owing to the Do 217 failing to live up to the specifications given. Although specifically ordered to cease development of the naval version of the Do 217, Dornier unofficially pursued the project and produced the Do 217W V1 and W V2 prototypes.

By the summer, 1940 the Luftwaffe had been using the Dornier Do 18, Heinkel He 115, Heinkel He 59, Heinkel He 111 and Junkers Ju 88 in maritime operations in the Baltic. At this point, the Ju 88 and He 111 equipped units were ordered to cease providing maritime support en masse. Instead, the Luftwaffe returned to the idea of the Do 217 and its floatplane version as a specialized naval attack aircraft. At the same time more plans were in place to produce extremely long-range aircraft (probably for operations deep in the Soviet Union). It is possible that the data sheet which Dornier gave the designation Do 217G was a part of that project. Unlike the Sea Stuka, floatplane, the G was to carry an MG 151 mounted in the nose and three MG 15s fitted for defence. The G was expected to reach 14,900 kilograms (33,000 lb). It was still designed for a crew of four and equipped with sprung floats which would allow the aircraft to land in rough open seas. The G could also carry the entire variation of the E-1 bomb load it could carry a load twice that of the Do P 85 aircraft. Unfortunately, the Do 217 E-1s performance was favoured. Nevertheless, the Gs design features figured and influenced the E-4 which went into production as the aircraft that would become the backbone of the Luftwaffe's Battle of the Atlantic bomber fleet.

Sources:
Gunston, Bill - The Encyclodepia of the Worlds Combat aircraft, 1976, Chartwell Books, Inc., New York
Brown, Eric, Captain - Wings of the Luftwaffe, 1979, Airlife Publishing Ltd., Shrewsbury
Gunston, Bill & Wood, Tony - Hitler's Luftwaffe, 1977, Salamander Books Ltd., London
Donald, David - The Complete Encyclopedia Of World Aircraft, 1997, Brown Packaging Books Ltd., London
Wikipedia - Dornier Do 217