The squadron was activated in 1967, and took over DeHavilland Canada C-7A Caribou aircraft that were formerly operated by the 17th Aviation Company of the U.S. Army in South Vietnam, adopting the tactical airlift mission. The squadron initially maintained a detachment at An Khe, which had been the 17th's base. It operated from Phù Cát Air Base. The 537th earned a Navy Presidential Unit Citation, as well as an Air Force Presidential Unit Citation for airlift support of Khe Sanh and other forward bases from January to May 1968. It earned a second Air Force Presidential Unit Citation for action between April and June 1970 when it participated in the aerial resupply of Dak Seang Special Forces Camp, evacuation of over 2000 refugees from Cambodia, and transportation of the Presidential Southeast Asia Investigation Team to various remote locations in South Vietnam.