By the end of 1994, the 16-bit video game era was in twilight in North America and gamers were eagerly anticipating the new 32-bit machines from Japan. In early 1995, Sega president Tom Kalinske announced that the Saturn would launch in the U.S. on "Saturnday", (Saturday) September 2, 1995. This date was greatly anticipated by gamers and the media. It also allowed Sony to announce that the PlayStation release date would be one week later on September 9, 1995.

However, at the first Electronic Entertainment Expo (E3) in May 1995, Kalinske announced that the "Saturnday" date was a ruse and that the system was being released nationwide by a few select retailers immediately (May 11, 1995). It appeared that Sega had a real opportunity to take a commanding 4-month lead in the 32-bit race by beating the PlayStation to the market.

However, the "surprise attack" launch backfired on Sega for several reasons. The Saturn was released at a high price point of US$399, while Sony announced a US$299 price for the PlayStation at E3 itself, as a response to the Saturn's earlier release.

The early launch also meant that the Saturn had only a handful of games available at the moment, as most third party games were slated to be completed and rolled out around the original September 2 launch date, and as many successful Japanese titles were not imported. Third party publishers, particularly these based in North America, were angered as the surprise launch prevented them from capitalizing on the momentum inherent in an anticipated, planned release. Essentially the only software available on the shelves at launch was software released by Sega. Many within the gaming industry viewed the early launch as a calculated move to give Sega larger sales of Saturn software at the expense of independent developers.

In addition, the retailers who were not included in the early launch (most notably Wal-Mart and KB Toys) felt betrayed, with some retaliating by supporting Sega's rivals. This resulted in Sega having difficulties with these distributors for the Saturn (and also for its successor, the Dreamcast). For example, Sega's actions so angered KB Toys that the latter refused to release the Saturn at all, and actually went as far as having some retailers remove anything Sega-related in stores to provide more retail space for the Saturn's competition instead.

By the time of the PlayStation's release on September 9, 1995, the Saturn had sold approximately 80,000 systems. The PlayStation sold over 100,000 units upon release in the U.S., and Sega's dreams of early domination of the new generation of hardware were quickly forgotten.

From 1995–1997 the Saturn became the "other" system, running a distant third behind the Nintendo 64 and the PlayStation. However, it was the preferred system for many arcade gamers who eagerly anticipated Sega's arcade classic games being ported to the system. Sales of the Saturn would generally spike as new arcade ports were released, then die off shortly thereafter. By the end of 1997, with Sega publicly saying that it would develop a successor, later known as the Dreamcast, console sales and released games dropped dramatically.

Saturn's failure caused Sega to lose US$267.9 million and layoff 30% of its workforce.