On the heels of the Texas Revolution, two New York real estate promoters, John Kirby Allen and Augustus Chapman Allen were seeking a location where they could begin building "a great center of government and commerce." In August 1836, they purchased 6,642 acres (27 km²) of land (on a site adjacent to the ashes of Harrisburg) from T. F. L. Parrot, John Austin's widow for $9,428. The Allen brothers first landed in the area where the confluence of White Oak Bayou and Buffalo Bayou served as a natural turning basin, now known as Allen's Landing.

The "city to be" was named after Sam Houston, the hero of San Jacinto, whom the Allen brothers admired and anticipated to be the first President of the Republic of Texas. Gail Borden, Jr., a publisher and surveyor, who would later found Borden Milk Products, exercised foresight when he laid out wide streets for the town.

After it was established, it started out as a hamlet. Its population later swelled into the thousands. The Laura, the first ship ever to visit Houston and Galveston, arrived on January 1837. The city was granted incorporation by the state legislature on June 5, 1837. Houston was made as the temporary capital of Texas. The first business opportunity for the city vaporized when a businessman's uncle, who was considering relocating his carriage making business, witnessed violence in a Texas saloon. He left the state never to return.

Lawlessness, diseases, and financial difficulties prompted Houstonians to put an end to their problems. And so, they wanted to make a Chamber of Commerce just for the city. A bill had been introduced on November 26, 1838 in Congress that would establish this entity. President Mirabeau B. Lamar signed the act into law on January 28, 1840. This move could not have come sooner; some creditors had already cut off some Houston businessmen, and there were numerous yellow fever outbreaks, including an 1839 outbreak that killed about 12 percent of its population.

Also, on January 14, 1839, the capital had been moved to Austin, known as Waterloo at the time. On April 4, 1840, seven men met at the Carlos City Exchange and enacted the Chamber of Commerce. The seven men were Thomas M. League, Henry R. Allen, George Gazely, John W. Pitkin, Charles Kesler, E.S. Perkins, and Dewitt C. Harris. The chamber's community development efforts would revive the dying frontier village.

In 1840, the town was divided into four wards, each with different functions in the community. The wards are no longer political divisions, but their names are still used. The Texas Government started to promote colonization of the state. The Allen brothers started to promote their town at the same time that the Republic of Texas started promoting settling of Texas. The Allen brothers were not particularly honest to the people whom they settled. They boasted of waterfalls in their advertisements when all Houston had were bayous. However, Houston did get many perks very quickly, since the brothers really wanted their city to succeed. Digging for a proposed Port of Houston began when Congress approved a move to dig out the Buffalo Bayou on January 9, 1842. Funding was awarded which amounted to $2000. Houstonians had mixed opinions over the apparent statehood of their country.

When Mexico was again threatening Texas, President Sam Houston moved the capital to Houston on June 27, 1842. However, the Austin residents wanted to keep the archives in their city. This would be known as the Archive Wars. The capital was then moved to Washington on-the-Brazos on September 29. Austin became capital again in 1844. The port in Houston was getting some shipping business, but the shallowness of the water hampered massive shipping. During the 1850s, the Houstonians decided to build in rail system to connect their port with rail links. Eleven companies built 451 miles of track before 1860. Mexican-Americans, who were one of the earliest immigrant groups to Houston, were used as railroad builders.

Houston first started shipping cotton, lumber, and other manufacturing products. Alexander McGowen established the iron industry, and Tom Whitmarsh built a cotton warehouse. A fire ravaged Houston on March 10, 1859, but the city rebuilt itself soon after.

Thousands of enslaved African-Americans lived near the city before the Civil War. Many of them around the city were on sugar and cotton plantations, while many in the city limits did housework. Forty-nine percent of the city's population was enslaved in 1860. A nearby settlement south of the Buffalo Bayou named Frost Town was swallowed by Houston.