Alpacas have been domesticated for thousands of years. There are no wild alpacas; they were bred down in domesticated form from the vicuña, which is also native to South America. They are closely related to llamas, which are descended from the guanaco. These four species of animals are collectively called camelids.

Of the four, the alpaca and the vicuña are the most valuable fiber-bearing animals: the alpaca because of the quality and quantity of its fiber, and the vicuña because of the softness, fineness and quality of its coat. Alpacas cannot carry pack loads as their llama cousins can; they were bred exclusively for their fiber and for their meat.

Alpacas and llamas can (and do) successfully cross breed, the resulting offspring are called huarizo, an animal for which there is little "real purpose," but they often have gentle temperaments and are suitable for pets. There are two types of alpaca: Huacaya (with dense, crimpy sheep-like fiber) and Suri (with silky dreadlocks). Suri fiber is often preferred by spinners, due to its long staple length and silky luster. Suris are much rarer than Huacayas, and are estimated to make up between 6 and 10% of the alpaca population. However, since its import into the United States through Bill Barnett, the Suri is growing substantially in number and color diversity. The Suri is possibly rarer because it is less hardy in the harsh South American mountain climates, as the style of its fleece offers less insulation against the cold (the Suri fleece parts along the spine, exposing the animal to the cold unlike the Huacaya fleece which provides excellent cover over the backbone).

Alpaca fleece is a luxurious fibre, similar to sheep's wool in some respects, although it is lighter in weight, silkier to the touch, warmer, not prickly and bears no lanolin, making it nearly hypoallergenic. A big trade of alpaca fleece exists in the countries where alpacas live, from very simple and not so expensive garments made by the aboriginal communities, to sophisticated products industrially made, that can have significantly high prices. In the United States, groups of smaller alpaca breeders have banded together to create 'fiber co-ops,' thus making the price of manufacturing alpaca fiber products much less expensive.

White is the predominant colour of alpacas, both Suri and Huacaya. This is because selective South American breeding has favoured white - bulk white fleece is easier to market and can be dyed any colour. However, alpacas come in more than 22 natural colours, from a true blue black through browns and fawns to white, and there are silver greys and rose greys as well. In South America, the preference is for white, and white animals generally have better fleece than darker-colored animals; however, in the United States, more and more people desire darker fiber, especially blacks and greys. Thus, breeders have been diligently working on breeding dark animals with exceptional fiber, and much progress has been made in these areas over the last 5-7 years.

Traditionally, alpaca meat has been eaten fresh, fried or in stews, by Andean inhabitants. There is a resurgent interest in alpaca meat in countries like Peru, where it is relatively easy to find it at upscale restaurants.