In June 1936, the Yugloslav government ordered 36 Do 17E variants from Germany. The negotiations for a license were completed on 27 June 1938 for 36 Do 17Ka's at the cost of 1,829,825 Reichsmark (RM). On 18 March 1938, Yugoslavia ordered 16 complete Do 17 Ka-2's and Ka-3's at a cost of 3,316,788 RM. They received the last on 21 April 1939. The machines were from 72-96% complete. The Dorniers were devoid of German equipment, including engines. The Yugoslavs found a French manufacturer to supply the powerplants instead. Gnome et Rhône was the supplier chosen, and the Gnome-Rhône Mistral Major engine was to be used in the Dornier. The French had inflated the performance data of the engine, claiming it to have 649 kW (870 hp) and a speed of 420 km/h (261 mph) at 3,850 m (12,320 ft). The constant-speed propellers were also poor, and delivered late. This led to trials with Piaggio Aero and Ratier propellers.[53] Only one of the Do 17s delivered was fitted out complete with German equipment. The rest of the Dorniers were equipped with Belgian FN 7.9 mm (.31 in) machine guns, Czech camera equipment and eventually Telefunken radio sets.[26] Altogether, 70 Do 17s were produced by Yugoslav factories.
At the beginning of German invasion of Yugoslavia, the Yugoslav Royal Air Force (YRAF) possessed some 60 Dornier Do 17Ks that equipped the 3 vazduhoplovni puk (3rd Bomber Regiment). It was composed of two groups: the 63rd Bomber Group stationed at Petrovac airbase near Skopje and the 64th Bomber Group stationed at Mileševo airbase near Priština. During hostilities, the aircraft factory in Kraljevo managed to produce three more aircraft. Two were delivered to the YRAF on 10 April and one on 12 April 1941. The Luftwaffe destroyed 26 of these Yugoslav Dorniers in the initial assault. Total Yugoslav losses stood at four destroyed in aerial combat and 45 destroyed on the ground. Between 14 and 15 April, seven Do 17Ks flew to Nikšić airport and took part in the evacuation of King Petar II and members of the Yugoslav government to Greece. During this operation, the Yugoslav gold reserves were also airlifted to Greece by seven Do 17s. After completing their task, five Do 17Ks were destroyed when Italian aircraft attacked Paramithia airbase in Greece. Only two Do 17Kb-1s escaped destruction and later joined the RAF in Egypt, where they were allocated the serial numbers AX707 and AX706. However, both machines were destroyed in an air attack on 27 August 1941. During this time, it is also recorded that two Dorniers escaped to the Soviet Union.[97] According to other sources 23 Yugoslav Dorniers survived the April battles, and the RAF received a third machine.