Nisenan (Southern Maidu), Modoc, and Plains Miwok Native Americans had lived in the area for perhaps thousands of years. Unlike the settlers who would eventually make Sacramento their home, these Native Americans left little evidence of their existence. Their diet was dominated by acorns taken from the plentiful oak trees in the region and by fruits, bulbs, seeds, and roots gathered throughout the year.

In 1808, the Spanish explorer Gabriel Moraga encountered and named the Sacramento Valley and the Sacramento River. A Spanish writer with the Moraga expedition wrote: "Canopies of oaks and cottonwoods, many festooned with grapevines, overhung both sides of the blue current. Birds chattered in the trees and big fish darted through the pellucid depths. The air was like champagne, and (the Spaniards) drank deep of it, drank in the beauty around them. "¡Es como el sagrado sacramento! (It's like the Blessed Sacrament.)" The valley and the river were then christened after the "Most Holy Sacrament of the Body and Blood of Christ", referring to the Catholic sacrament of the Eucharist.

John Sutter Sr. first arrived in the area on August 13, 1839, at the divergence of the American and Sacramento Rivers with a Mexican land grant of 50,000 acres. The next year, his party and he established Sutter's Fort, a massive adobe structure with walls 18 feet high and three feet thick.

Representing Mexico, Sutter Sr. called his colony New Helvetia, a Swiss-inspired name, and was the political authority and dispenser of justice in the new settlement. Soon, the colony began to grow as more and more pioneers headed west. Within just a few short years, Sutter Sr. had become a grand success, owning a 10-acre orchard and a herd of 13,000 cattle. Fort Sutter became a regular stop for the increasing number of immigrants coming through the valley. In 1847, Sutter Sr. received 2,000 fruit trees, which started the agriculture industry in the Sacramento Valley. Later that year, Sutter Sr. hired James Marshall to build a sawmill so he could continue to expand his empire, but unbeknownst to many, Sutter Sr.'s "empire" had been built on thin margins of credit.

In 1848, when gold was discovered by James W. Marshall at Sutter's Mill in Coloma (some 50 mi (80.5 km) northeast of the fort), a large number of gold-seekers came to the area, increasing the population. In August 1848, Sutter Sr.'s son, John Sutter Jr., arrived in the area to assist his father in relieving his indebtedness. Now compounding the problem of his father's indebtedness, was the additional strain placed on the Sutters by the ongoing arrival of thousands of new gold miners and prospectors in the area, many quite content to squat on unwatched portions of the vast Sutter lands, or to abscond with various unattended Sutter properties or belongings if they could. In Sutter's case, rather than being a 'boon' for Sutter, his employee's discovery of gold in the area turned out to be more of a personal 'bane' for him.

By December 1848, John Sutter Jr., in association with Sam Brannan, began laying out the City of Sacramento, 2 miles south of his father's settlement of New Helvetia. This venture was undertaken against the wishes of Sutter Sr., but the father, being deeply in debt, was in no position to stop the venture. For commercial reasons, the new city was named "Sacramento City" after the Sacramento River. Sutter Jr. and Brannon hired topographical engineer William H. Warner to draft the official layout of the city, which included 26 lettered and 31 numbered streets (today's grid from C St. to Broadway and from Front St. to Alhambra Blvd.). Unfortunately, a certain bitterness grew between the elder Sutter and his son as Sacramento became an overnight commercial success (Sutter's Fort, Mill, and the town of Sutterville, all founded by John Sutter Sr., would eventually fail).

The citizens of Sacramento adopted a city charter in 1849, which was recognized by the state legislature in 1850. Sacramento is the oldest incorporated city in California, incorporated on February 27, 1850. During the early 1850s, the Sacramento valley was devastated by floods, fires and cholera epidemics. Despite this, because of its position just downstream from the Mother Lode in the Sierra Nevada, the new city grew, quickly reaching a population of 10,000.

The California State Legislature, with the support of Governor John Bigler, moved to Sacramento in 1854. The capital of California under Spanish (and, subsequently, Mexican) rule had been Monterey, where, in 1849, the first Constitutional Convention and state elections were held. The convention decided San Jose would be the new state's capital. After 1850, when California's statehood was ratified, the legislature met in San Jose until 1851, Vallejo in 1852, and Benicia in 1853, before moving to Sacramento. In the Sacramento Constitutional Convention of 1879, Sacramento was named to be the permanent state capital.

Begun in 1860 to be reminiscent of the United States Capitol in Washington, D.C., the Classical Revival style California State Capitol was completed in 1874. In 1861, the legislative session was moved to the Merchants Exchange Building in San Francisco for one session because of massive flooding in Sacramento. The legislative chambers were first occupied in 1869 while construction continued. From 1862 to 1868, part of the Leland Stanford Mansion was used for the governor's offices during Stanford's tenure as the Governor; and the legislature met in the Sacramento County Courthouse.

With its new status and strategic location, Sacramento quickly prospered and became the western end of the Pony Express. Later it became a terminus of the First Transcontinental Railroad, which began construction in Sacramento in 1863 and was financed by "The Big Four"—Mark Hopkins, Charles Crocker, Collis P. Huntington, and Leland Stanford. Both the American and especially Sacramento rivers would be key elements in the economic success of the city. In fact, Sacramento effectively controlled commerce on these rivers, and public works projects were funded through taxes levied on goods unloaded from boats and loaded onto rail cars in the historic Sacramento Rail Yards.

In 1850 and again in 1861, Sacramento citizens were faced with a completely flooded town. In 1861, Governor Leland Stanford, who was inaugurated in early January 1861, had to attend his inauguration in a rowboat, which was not too far from his house in town on N Street. The flood waters were so bad, the legend says, that when he returned to his house, he had to enter into it through the second floor window. From 1862 until the mid-1870s Sacramento raised the level of its downtown by building reinforced brick walls on its downtown streets, and filling the resulting street walls with dirt. Thus the previous first floors of buildings became the basements, with open space between the street and the building, previously the sidewalk, now at the basement level. Over the years, many of these underground spaces have been filled or destroyed by subsequent development. However, it is still possible to view portions of the "Sacramento Underground".

During the 1850s the city was consolidated with the County of Sacramento.

The city's current charter was adopted by voters in 1920. As a charter city, Sacramento is exempt from many laws and regulations passed by the state legislature. The city has expanded continuously over the years. The 1964 merger of the City of North Sacramento with Sacramento substantially increased its population, and large annexations of the Natomas area eventually led to significant population growth throughout the 1970s, 1980s, and 1990s.

Sacramento County (along with a portion of adjacent Placer County) is served by a customer-owned electric utility, the Sacramento Municipal Utility District (SMUD). Sacramento voters approved the creation of SMUD in 1923. In April 1946, after 12 years of litigation, a judge ordered Pacific Gas & Electric to transfer title of Sacramento's electric distribution system to SMUD. Today SMUD is the sixth-largest public electric utility in the U.S., and is a leader for innovative programs and services, including the development of clean fuel resources, such as solar power.

The year following the creation of SMUD, 1924, brought several events in Sacramento: Standard Oil executive Verne McGeorge established McGeorge School of Law, American department store Weinstock & Lubin opened a new store at 12th and K street, the US$2 million Senator Hotel was opened, Sacramento's drinking water became filtered and treated drinking water, and Sacramento boxer Georgie Lee fought Francisco Guilledo, a Filipino professional boxer known as Pancho Villa, at L Street Auditorium on March 21.

Early in World War II, the Sacramento Assembly Center (also known as the Walerga Assembly Center) was established to house Japanese Americans forcibly "evacuated" from the West Coast under Executive Order 9066. The camp was one of fifteen temporary detention facilities where over 110,000 Japanese Americans, two-thirds of them U.S. citizens, were held while construction on the more permanent War Relocation Authority camps was completed. The assembly center was built on the site of a former migrant labor camp, and inmates began arriving from Sacramento and San Joaquin Counties on May 6, 1942. It closed after only 52 days, on June 26, and the population of 4,739 was transferred to the Tule Lake concentration camp. The site was then turned over to the Army Signal Corps and dedicated as Camp Kohler.

After the war and the end of the incarceration program, returning Japanese Americans were often unable to find housing and so 234 families temporarily lived at the former assembly center. Camp Kohler was destroyed by a fire in December 1947, and the assembly center site is now part of the Foothill Farms-North Highlands subdivision. The Sacramento-Yolo Port District was created in 1947, and ground was broken on the Port of Sacramento in 1949.

On June 29, 1963, with 5,000 spectators waiting to welcome her, the Motor Vessel Taipei Victory arrived. The Nationalist Chinese flagship docked at the Port of Sacramento, being first ocean-going vessel in Sacramento since the steamship Harpoon in 1934.

In 1967, Ronald Reagan became the last Governor of California to live permanently in the city. The 1980s and 1990s saw the closure of several local military bases: McClellan Air Force Base, Mather Air Force Base, and Sacramento Army Depot. In 1980, there was another flood.

In spite of military base closures and the decline of agricultural food processing, Sacramento has continued to experience population growth in recent years. Primary sources of population growth are an influx of residents from the nearby San Francisco Bay Area, as well as immigration from Asia and Latin America. In 1985, Hugh Scrutton, a 38-year-old Sacramento, California, computer store owner, was killed by a nail-and-splinter-loaded bomb placed in the parking lot of his store. In 1996, his death was attributed to the Unabomber, Theodore Kaczynski.

After acquiring the majority stake in the Sacramento Kings, the team's new owner, Vivek Ranadivé with the help of the city, agreed to build a new Arena in the downtown area. With a final estimated cost of $558.2 million, Sacramento's Golden 1 Center opened on September 30, 2016.

In 2002, the Civil Rights Project at Harvard University conducted for Time magazine named Sacramento "America's Most Diverse City". The U.S. Census Bureau also groups Sacramento with other U.S. cities having a "high diversity" rating of the diversity index. Moreover, Sacramento is one of the most well-integrated U.S. cities, having a relatively high level of ethnic and racial heterogeneity within its neighborhoods.

The 2010 United States Census reported Sacramento had a population of 466,488. The population density was 4,660.0 people per square mile (1,799.2/km²).

The racial makeup of Sacramento was:

Hispanic or Latino of any race were 138,165 persons (26.9%); 22.6% of Sacramento's population is of Mexican heritage which amounts to over four-fifths of the city’s Hispanic/Latino diaspora, 0.7% Puerto Rican, 0.5% Salvadoran, 0.2% Guatemalan, and 0.2% Nicaraguan.Non-Hispanic Whites were 34.5% of the population in 2010, down from 71.4% in 1970.

The Census reported 458,174 people (98.2% of the population) lived in households, 4,268 (0.9%) lived in non-institutionalized group quarters, and 4,046 (0.9%) were institutionalized. The recent^[when?] housing crash has not impacted these numbers.^{[citation needed]}

There were 174,624 households, out of which 57,870 (33.1%) had children under the age of 18 living in them, 65,556 (37.5%) were opposite-sex married couples living together, 27,640 (15.8%) had a female householder with no husband present, 10,534 (6.0%) had a male householder with no wife present. There were 13,234 (7.6%) unmarried opposite-sex partnerships, and 2,498 (1.4%) same-sex married couples or partnerships. 53,342 households (30.5%) were made up of individuals, and 14,926 (8.5%) had someone living alone who was 65 years of age or older. The average household size was 2.62. There were 103,730 families (59.4% of all households); the average family size was 3.37.

Sacramento has one of the highest LGBT populations per capita, ranking seventh among major American cities, and third in California behind San Francisco and slightly behind Oakland, with roughly 10% of the city's total population identifying themselves as gay, lesbian, or bisexual.

The age distribution of the city was follows: 116,121 people (24.9%) were under the age of 18, 52,438 people (11.2%) aged 18 to 24, 139,093 people (29.8%) aged 25 to 44, 109,416 people (23.5%) aged 45 to 64, and 49,420 people (10.6%) who were 65 years of age or older. The median age was 33.0 years. For every 100 females, there were 94.9 males. For every 100 females age 18 and over, there were 92.2 males.

There were 190,911 housing units at an average density of 1,907.1 per square mile (736.3/km²), of which 86,271 (49.4%) were owner-occupied, and 88,353 (50.6%) were occupied by renters. The homeowner vacancy rate was 2.8%; the rental vacancy rate was 8.3%. 231,593 people (49.6% of the population) lived in owner-occupied housing units and 226,581 people (48.6%) lived in rental housing units.