The H.D.46 was designed as a two-seat biplane of mixed wood and metal construction with fabric covering. The upper mainplane had 10 deg sweepback, the tailplane was high-mounted and strut-braced, and there was a fixed undercarriage with a tail-skid. Powered by a 450 hp Siemens-built Bristol Jupiter nine-cylinder air-cooled radial engine, the H.D.46a (registered D-1702 c/n 376) flew as the first prototype in November 1931 and was followed by the H.D.46b (D-1028 c/n 377) December 4, 1931, the latter differing in having a balanced rudder.
Flying characteristics were satisfactory but a major modification was decided on. This was the deletion of the small lower wing from the third prototype, still under construction, in order to improve the downward view. The mainplane was strutbraced to the base of the fuselage and its area was increased by 22 per cent. Thus the He 46 was transformed into a parasol-wing monoplane, and the third prototype, designated He 46 C, incorporated also operational equipment and a single 0.311 in (7.9 mm) MG 15 machine-gun in the rear observer's cockpit. Subsequently the first two biplane prototypes were converted to parasol-wing monoplanes, the He 46 A was further improved by fitting a more powerful engine, the 660 hp Siemens SAM 22B (later known as the Bramo 322B) nine-cylinder radial.
After official acceptance, production began at Heinkel's Warnemünde factory in 1933 with the He 46 C-1, which could carry either a camera or up to 440 lb (200 kg) of small bombs beneath the rear cockpit. Although Warnemünde was responsible for the bulk of production, it was necessary to bring in companies such as Fieseler, Gotha, MIAG and Siebel as subcontractors to produce the required number of aircraft within a reasonable time. The Siemens SAM 22B engines were not, however, mass-produced so easily and quality was initially sacrificed, with the result that some He 46s vibrated alarmingly.
Minor changes in the He 46 C-1 produced the He 46 D, and when this type was fitted with a NACA engine cowling it was designated He 46 E. Although this cowling improved the maximum speed by about 16 mph (25 kmh), it was rarely used in Luftwaffe service because of the engines needing constant attention. A more reliable engine, the 560 hp Armstrong Siddeley Panther, with a cowling, was fitted to the He 46 F of which a small number were built for training purposes, these were unarmed.
By 1936 the Luftwaffe's reconnaissance units were fully equipped with the He 46 and the type was offered for export. Bulgaria acquired eighteen He 46 C-2s (also noted as He 46 EBul), which differed from the C-1 mainly in having NACA cowlings, and Hungary acquired 62 He 46 E-2s (also noted as He 46 EUn, Hungary in German is Ungarn). In September 1938, twenty He 46 C-1s were dispatched for use by the Spanish Nationalists. In Spain the He 46 was nicknamed 'Pava' (female turkey).
When production ceased, three prototypes and at least 479 production aircraft had been produced in the following versions and quantity:
He 46 C-1. Heinkel 200, Fiesler 12, Siebel 159
He 46 C-2. Gotha 18
He 46 D-1. Heinkel 7
He 46 E-1. Siebel 6
He 46 E-2. MIAG 62
He 46 F. MIAG 15
From the spring of 1938, the Luftwaffe began the gradual replacement of the He 46 with the Henschel He 126 A-1, and this process was complete by the time Germany invaded France."