Prior to the expansion westward of settlers, the prairie was covered with buffalo grass. Plains Indians, descendants of indigenous peoples who occupied the area for thousands of years, lived in and hunted along Salt Creek. The Pawnee, which included four tribes, lived in villages along the Platte River. The Great Sioux Nation, including the Ihanktowan-Ihanktowana and the Lakota located to the north and west, used Nebraska as a hunting and skirmish ground, although they did not have any long-term settlements in the state. An occasional buffalo could still be seen in the plat of Lincoln in the 1860s. 

Lincoln was founded in 1856 as the village of Lancaster and became the county seat of the newly created Lancaster County in 1859. The village was sited on the east bank of Salt Creek. The first settlers were attracted to the area due to the abundance of salt. Once J. Sterling Morton developed his salt mines in Kansas, salt in the village was no longer a viable commodity. Captain W. T. Donovan, a former steamer captain, and his family settled on Salt Creek in 1856. In the fall of 1859, the village settlers met to form a county. A caucus was formed and the committee, which included Captain Donovan, selected the village of Lancaster to be the county seat. The county was named Lancaster. After the passage of the 1862 Homestead Act, homesteaders began to inhabit the area. The first plat was dated August 6, 1864.

By the close of 1868, Lancaster had a population of approximately 500 people. The township of Lancaster was renamed Lincoln with the incorporation of the city of Lincoln on April 1, 1869. In 1869, the University of Nebraska was established in Lincoln by the state with a land grant of about 130,000 acres. Construction of University Hall, the first building, began the same year.

The capital of the Nebraska Territory had been Omaha since the creation of the territory in 1854; however, most of the territory's population lived south of the Platte River. After much of the territory south of the Platte River considered annexation to Kansas, the territorial legislature voted to locate the capital city south of the river and as far west as possible. 

Thomas P. Kennard House Prior to the vote to remove the capital city from Omaha, a last ditch effort by Omaha Senator J. N. H. Patrick attempted to derail the moves by having the future capital city named after recently assassinated President Abraham Lincoln.  Many of the people south of the Platte River had been sympathetic to the Confederate cause in the recently concluded Civil War.  It was assumed that senators south of the river would not vote to pass the measure if the future capital was named after the former president.  In the ed, the motion to name the future capital city Lincoln was ineffective and the vote to change the capital's location south of the Platte River was successful with the passage of the Removal Act. Nebraska was granted statehood on March 1, 1867. The Removal Act called for the formation of a Capital Commission to locate a site for the capital on state owned land. The Commission, composed of Governor David Butler, Secretary of State Thomas Kennard and Auditor John Gillespie, began to tour sites on July 18, 1867 for the new capital city. The village of Lancaster was chosen, in part due to the salt flats and marshes. Lancaster had approximately 30 residents. Disregarding the original plat of the village of Lancaster, Thomas Kennard platted Lincoln on a broader scale. The plat of the village of Lancaster was not dissolved nor abandoned; Lancaster became Lincoln when the Lincoln plat files were finished September 6, 1867. To raise money for the construction of a capital city, a successful auction of lots was held. Newcomers began to arrive and Lincoln's population grew. The Nebraska State Capitol was completed on December 1, 1868; a two story building constructed with native limestone with a central cupola. The Kennard house, built in 1869, is the oldest remaining building in the original plat of Lincoln.

Goodhue-designed Nebraska State Capitol.

In 1888 a new capitol building was constructed on the site of the first capitol. The new building replaced the former structurally unsound capitol. The second capitol building was a classical design, designed by architect William H. Willcox. Construction began on a third capitol building in 1922. Bertram G. Goodhue was selected in a national competition as its architect. By 1924, the first phase of construction was completed and state offices moved into the new building. In 1925, the Willcox designed capitol building was razed. The Goodhue designed capitol was constructed in four phases, with the completion of the fourth phase in 1932. The completion of the original Goodhue design will be finally realized with the completion of the capitol fountains within the four interior courtyards of the capitol building in 2017. 

Government Square; U.S. Post Office and Courthouse (1879-1906); City Hall (1906-1969)

The worldwide economic depression of 1890 saw the reduction of Lincoln's population from 55,000 to 37,000 by 1900. Volga-German immigrants from Russia settled in the North Bottoms neighborhood and as Lincoln expanded with the growth in population, the city began to annex towns nearby. The first town annexed was Bethany Heights in 1922. Bethany Heights was incorporated in 1890. In 1929, the city annexed the town College View. College View was incorporated in 1892. Union College, a Seventh Day Adventist institution, was founded in College View in 1891. In 1930, the city annexed the town of Havelock. Havelock actively opposed annexation to Lincoln and only relented due to a strike by the Burlington railroad shop workers which halted progress & growth for the city.

The Burlington & Missouri River Railroad's first train arrived in Lincoln on June 26, 1870, soon to be followed by the Midland Pacific in 1871 and the Atchison & Nebraska in 1872. The Union Pacific began service in 1877. The Chicago & North Western and Missouri Pacific began service in 1886. The Chicago, Rock Island & Pacific extended service to Lincoln in 1892. Lincoln became a rail center hub.