Indonesian (Bahasa Indonesia), a form of Malay, is spoken in Indonesia. It is an Austronesian language, a language family that extends across the islands of Southeast Asia and the Pacific. The term “Indonesian” is more political than linguistic, as Indonesian Malay is extremely similar to the Malay spoken in Malaysia, Singapore, and Brunei. It is also an important native language in the southern provinces of Thailand, in East Timor, and among the Malay people of Australia’s Cocos Keeling Islands in the Indian Ocean.
Malay had been used as a lingua franca for centuries across in the archipelago of 17,000+ islands that comprise current-day Indonesia. Over time, due to influences from non-Indonesian traders such as Arabs, Chinese, and Western Europeans (Portuguese and Dutch), the Indonesian language underwent major changes and essentially became a pidgin language. The Malay spoken by traders was generally called “bazaar Malay," while “classical Malay,” spoken by nobility in the Indonesian court, remained more or less unaltered. In 1928, the young nationalist movement in Indonesia chose classical Malay as the basis of the nation’s national language. They named it “Bahasa Indonesia,” which literally translates to “the language of Indonesia." Modern Indonesian uses the Latin script, which Europeans introduced at the beginning of the 20th century. As the most widely spoken language in Southeast Asia, more than 200 million people speak Indonesian or similar forms of Malay.
Sources: UCLA Language Materials Project; Indonesian-Online.com