Prior to the Civil War, the Methodist Episcopal Church, South had been considering creating a regional university for the training of ministers. Through the lobbying of Nashville bishop Holland McTyeire, church leaders voted in 1872 to create a Central University in Nashville. However, lack of funds delayed the actual founding of the college.

The following year, on a medical trip to New York, McTyeire stayed at the residence of Cornelius Vanderbilt, whose second wife was the cousin of McTyeire's wife. Vanderbilt, the wealthiest man in America at the time, had been considering philanthropy as he was in his advanced years. His original plan was to establish a university on Staten Island, New York to honor his mother. However, McTyeire successfully convinced him to donate $500,000 to endow Central University. The endowment (later increased to $1 million) would be Vanderbilt's only philanthropy. Though he never expressed any desire to having the university named after himself, McTyeire and his fellow trustees soon rechristened the school as the Vanderbilt University.

In the fall of 1875, about two hundred students enrolled at Vanderbilt; the University was dedicated in October of that year. Bishop McTyeire named Landon Garland, his mentor from Randolph-Macon College in Virginia and then-Chancellor of the University of Mississippi, as Chancellor. Garland shaped the school's structure and hired the school's faculty, many of whom were renowed scholars in their respective fields.

For the next 40 years of its existence, Vanderbilt would be under the auspices of the General conference of the Methodist Episcopal Church, South. However, tensions began rising between the University administration and the Conference over the future of the school, particularly over the methods by which members of the Vanderbilt Board of Trust would be chosen. Conflicts escalated with the appointment of James Kirkland as chancellor in 1893. The final straw, at least in the mind of Kirkland, was a failed campaign to raise $300,000 from southern Methodist congegrations (only $50,000 was raised). Further disputes between the bishops and Kirkland, which erupted into litigation in 1912, led the Methodist conference to sever all ties with Vanderbilt University in June 1914.

Probably the peak of Vanderbilt's intellectual influence was the 1920's and 1930's, when it hosted two partly-overlapping groups of scholars who had a large impact on American thought and letters, the Fugitives and the Agrarians.

In the late 1950's, the Vanderbilt Divinity School became something of a hotbed of the emerging Civil Rights movement, and the university responded rashly by expelling one of its leaders, James Lawson. Much later, in 1996, he was made a Distinguished Alumnus for his achievements.

In 1979, Vanderbilt absorbed its near neighbor, Peabody College.

History, race, and civil rights issues again came to the fore on the campus in 2002, when the university decided to rename an old dormitory called Confederate Memorial Hall, and nationwide attention, plus a lawsuit by the Order of the Confederate Rose  resulted.