The first British settlement in what is now Victoria was established in October 1803 by Colonel David Collins at Sullivan Bay, near modern-day Sorrento. This early outpost, part of the penal colony of New South Wales, was short-lived; settlers relocated to Van Diemen’s Land (now Tasmania) the following year due to limited resources, founding the city of Hobart. Nearly three decades passed before another European settlement was attempted.

In May and June 1835, John Batman, a member of the Port Phillip Association in Van Diemen’s Land, explored the Melbourne area. He later claimed to have negotiated the purchase of 2,400 km² (600,000 acres) from eight Wurundjeri elders. The treaty, however, is widely disputed, as communication barriers meant the elders likely viewed the exchange as a tanderrum ceremony, granting temporary access to the land rather than a permanent sale. Batman identified a site on the northern bank of the Yarra River as ideal for settlement. In August 1835, a group of Van Diemenian settlers arrived, establishing a settlement near today’s Melbourne Immigration Museum, and Batman’s group joined them the following month. The settlement was initially known by the Indigenous name Dootigala.

Batman’s treaty was annulled by Richard Bourke, Governor of New South Wales, with compensation paid to members of Batman’s association. In 1836, Bourke designated Melbourne as the administrative capital of the Port Phillip District and commissioned the first urban plan, known as the Hoddle Grid, in 1837. The settlement, briefly called Batmania, was officially named Melbourne on 10 April 1837, after the British Prime Minister William Lamb, 2nd Viscount Melbourne. That same year, the city’s General Post Office opened under the new name.

The early years of Melbourne’s European settlement were marked by the dispossession of Victorian Aboriginal groups. Between 1836 and 1842, Aboriginal people were largely removed from their lands, including through directives by Superintendent Charles La Trobe and actions such as the mass arrests of 1840, known as the Lettsom raid. Despite this, many Indigenous people continued living near the settlement, with hundreds residing in makeshift camps by 1844. Attempts to protect Aboriginal communities, such as the appointment of Aboriginal Protectors in 1839, were undermined by colonial land policies favoring European squatters.

By 1845, a small number of wealthy Europeans controlled almost all pastoral licenses in Victoria, consolidating political and economic power. Letters patent issued by Queen Victoria on 25 June 1847 officially declared Melbourne a city, and on 1 July 1851, the Port Phillip District separated from New South Wales to form the Colony of Victoria, with Melbourne as its capital.