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The Douglas XO-36 was the designation originally given to the airframe that was completed as the prototype Douglas XB-7 light bomber.
Douglas had produced a long series of single engined biplane observation aircraft for the US Air Corps. During 1929 they had produced the single engined high-winged monoplane O-31, and had been rewarded with a contract to produce two XO-31 prototypes early in 1930.
In 1929 the US War Department ordered two prototypes of the Fokker XO-27, a twin-engined monoplane with a retractable undercarriage. Douglas was worried that they might be left behind, and approached the War Department with a proposal that they should design a similar aircraft. On 26 March the War Department issued Douglas with a contract to produce two prototypes - the XO-35 and XO-36.
The two prototypes were to be very similar, differing only in their engines. They were both gull winged monoplanes with the engines carried on struts well below the wing. They were of all metal construction, with retractable undercarriage, but with open cockpits for the two gunners and the pilot. Both were to be powered by the Curtiss Conqueror liquid-cooled inline engine, but the XO-35 was to use the geared 600hp V-1570-29 engine while the XO-36 got the direct drive 600hp V-1570-23.
The calculated performance of the new observation aircraft was significantly better than that of the Air Corps' standard light bombers of the period, the Keystone B-3A, B-4A, B-5A and B-6A twin-engined biplanes. The Air Corps decided to keep the O-35 as an observation aircraft but have the O-36 completed as a light bomber, with the new designation Douglas XB-7. Fokker was also asked to produce a bomber version of the XO-27, as the Fokker XB-8.
The B-7 was very similar to the O-36, but with bomb racks carried underneath the fuselage. It took rather longer to complete and test than the unmodified O-35, which was delivered to the Air Corps in the autumn of 1931. The XB-7 wasn't handed over until July 1932, by which time an order for seven Y1B-7s and five Y1O-35s had already been placed. Production must have been underway, for the order was completed by the end of 1932.