Originally called the University of the City of New York, it was founded by a group of prominent New Yorkers in 1831 as an alternative to the Episcopalian-dominated and "aristocratic" Columbia College (now Columbia University). Notable among NYU's founding fathers is Albert Gallatin, after whom one of the University's schools is named. In the beginning, the University, which had always been known as New York University (the name changed officially in 1896), focused primarily on teaching Latin and Greek, though it was also a progressive school, offering coursework in modern languages, engineering, agriculture, and other pragmatic subjects. In 1832, NYU held its first classes in rented rooms in four-story Clinton Hall, located near City Hall. In 1835, NYU's first professional school, the School of Law, was founded.

Clinton Hall, which sat in the heart of New York's bustling and noisy commercial district, would only be NYU's home for a few years as administrators looked uptown for a more suitable and permanent academic environment. More specifically, they looked towards Greenwich Village which, at the time, was a rural hamlet surrounded by farmland. Land was purchased on the east side of Washington Square and, in 1833, construction began on the "Old University Building," a grand, Gothic structure that would house all of the school's functions. Two years later, the university community took possession of its permanent home, thus beginning NYU's enduring relationship with the Village.

While NYU has had its Washington Square campus since its inception, the University purchased a campus at University Heights in the Bronx, as a result of overcrowding on the old campus. NYU's move to the Bronx took place in 1894, spearheaded by the efforts of Chancellor Mitchell MacCracken, who is credited with turning the school into a modern university. The University Heights campus was far more spacious than its predecessor, and housed the bulk of the University's operations, along with the undergraduate College of Arts and Science (University College) and School of Engineering.

During the 1960s and 1970s, feeling the pressures of imminent bankruptcy, then-President of NYU, James Hester, negotiated the sale of the University Heights campus to the City University of New York, which took place in 1973. While University Heights alumni fought to keep the campus, some suggest that the sale was a "blessing in disguise" as the Uptown campus was losing money and the management of two campuses was impossible for NYU, financially. Chancellor Sidney Borowitz said on the matter, "There was so much pressure from Uptown alumni to preserve the Heights that it was only under the threat of possible financial ruin that the campus could be sold. With two campuses, NYU could never have prospered as it has." After the sale of the University Heights campus, University College merged with Washington Square College (founded in 1914), which was the Arts and Sciences division of the University based in Greenwich Village. NYU's School of Engineering was shut down, and most of its students transferred to Polytechnic University in Brooklyn.