Designed as a reconnaissance floatplane the Parnall Peto was intended to be launched from British Royal Navy submarines. The first of two prototypes, N181 first flew on 4 June 1925. Unfortunately it crashed during trials on 11 February 1930, but was rebuilt with aluminium floats replacing the original wooden ones and a 169 hp Armstrong Siddeley Mongoose engine replacing the 128 Bristol Lucifer. In its new form it received the serial N255.
The N181/N255 was trialed on the submarine HMS M2 which was fitted with a catapult and hanger. Unfortunately M2 was lost with all hands along with the Peto.
A second Peto N182 was added to the test program but it crashed on 29 June 1930.