Like Washington, D.C., on which it was modeled, Indianapolis is a city deliberately planned as a capital. In 1820 the state legislature of Indiana selected ten commissioners to choose a site for the state capital, which was established at the site of a small, recently formed settlement called Fall Creek, chosen for its location at virtually the exact center of the state. Ten square kilometers (four square miles) were allocated for the new capital although only two-and-a-half square

The streets of Indianapolis were planned to branch out from a central circle, which features the Soldiers' and Sailors' Monument. ()
kilometers (one square mile) were initially plotted. The city was designed by Alexander Ralston, who had assisted Pierre L'Enfant (1754–1825) in the plans for the nation's capital, and the new city was similarly designed as a grid of streets radiating outward from a central circle in which the seat of government was to be situated. The name "Indianapolis" (Indiana plus polis, the Greek word for "city") was chosen in 1821.

It took a while until the city grew significantly, at least partly because it was not situated near a navigable body of water—the nearby White River was too shallow for navigation. However, with the construction of the National Road (today I-40) through the city in 1830 and the completion of the Central Canal in 1839, industrial activity increased, and the arrival of the first rail lines in 1847 provided access to the Ohio River, eventually turning Indianapolis into a commercial center. By mid-century, immigration, especially by Germans, increased the city's population to 18,611 by the beginning of the Civil War.

During the last two decades of the nineteenth century, the city underwent significant development that included the construction of Union Station and a new statehouse, as well as the introduction of paved streets and, in 1881, electric street lights (among the first in any American city). In the 1890s an enduring link between Indianapolis and the automobile was forged with the development by Charles H. Black of the first gasoline-powered auto. By 1911 the first car race was held at the Indianapolis Speedway. By 1920 Indianapolis had become an important industrial city, with a population of 300,000. However, the 1920s were marred by the rise to prominence of the Ku Klux Klan in the city's political and social life, but the Klan's power had declined by the 1930s. During the Great Depression of the 1930s, the Public Works Administration oversaw the construction of Lockfield Gardens, one of the nation's first public housing developments.

Indianapolis's central location and extensive transportation network made it a center for troop transport during World War II (1939–45), as well as a hub of wartime manufacturing. In the 1950s and 1960s, however, rail traffic declined and the city stagnated. A major revitalization effort was begun in 1970 with the administrative reorganization that merged some functions of the municipal government with those of the Marion County government to create a unique governmental entity known as UniGov, which has furthered the growth of the city and enhanced its national reputation. Soon afterwards, the city adopted a strategy of achieving growth by promoting itself as a center for sporting events, beginning with the construction of the Market Square Arena home of the Indiana Pacers since 1974.

The focus on sports continued during the 16-year tenure (1976–82) of Mayor William H. Hudnut, under whose leadership Indianapolis spent more than $126 million on construction athletic facilities, aided by the Lilly Endowment and other private donors. A highlight of this effort was the creation of a new 61,000-seat football stadium. The city's development efforts, which continued into the 1990s, have also included the ambitious Circle Centre project, a $300 million urban mall with over 100 retail outlets.