In the mid-18th century, the area was inhabited by the Potawatomi, a Native American tribe who had succeeded the Miami and Sauk and Fox peoples in this region.

The first known non-indigenous permanent settler in Chicago was explorer Jean Baptiste Point du Sable. Du Sable was of African and French descent, born in the French colony of Saint-Domingue (Haiti), and arrived in the 1780s. He is commonly known as the "Founder of Chicago".

In 1795, following the victory of the new United States in the Northwest Indian War, an area that was to be part of Chicago was turned over to the US for a military post by native tribes in accordance with the Treaty of Greenville. In 1803, the United States Army built Fort Dearborn. This was destroyed in 1812 in the Battle of Fort Dearborn by the British and their native allies. It was later rebuilt.

After the War of 1812, the Ottawa, Ojibwe, and Potawatomi tribes ceded additional land to the United States in the 1816 Treaty of St. Louis. The Potawatomi were forcibly removed from their land after the Treaty of Chicago in 1833 and sent west of the Mississippi River during Indian Removal.

On August 12, 1833, the Town of Chicago was organized with a population of about 200. Within seven years it grew to more than 6,000 people. On June 15, 1835, the first public land sales began with Edmund Dick Taylor as Receiver of Public Monies. The City of Chicago was incorporated on Saturday, March 4, 1837, and for several decades was the world's fastest-growing city.

As the site of the Chicago Portage, the city became an important transportation hub between the eastern and western United States. Chicago's first railway, Galena and Chicago Union Railroad, and the Illinois and Michigan Canal opened in 1848. The canal allowed steamboats and sailing ships on the Great Lakes to connect to the Mississippi River.

A flourishing economy brought residents from rural communities and immigrants from abroad. Manufacturing and retail and finance sectors became dominant, influencing the American economy. The Chicago Board of Trade (established 1848) listed the first-ever standardized "exchange-traded" forward contracts, which were called futures contracts.

In the 1850s, Chicago gained national political prominence as the home of Senator Stephen Douglas, the champion of the Kansas–Nebraska Act and the "popular sovereignty" approach to the issue of the spread of slavery. These issues also helped propel another Illinoisan, Abraham Lincoln, to the national stage. Lincoln was nominated in Chicago for US president at the 1860 Republican National Convention, which was held in Chicago in a temporary building called the Wigwam. He defeated Douglas in the general election, and this set the stage for the American Civil War.

To accommodate rapid population growth and demand for better sanitation, the city improved its infrastructure. In February 1856, Chicago's Common Council approved Chesbrough's plan to build the United States' first comprehensive sewerage system. The project raised much of central Chicago to a new grade. While elevating Chicago, and at first improving the city's health, the untreated sewage and industrial waste now flowed into the Chicago River, and subsequently into Lake Michigan, polluting the city's primary freshwater source.

The city responded by tunneling two miles (3.2 km) out into Lake Michigan to newly built water cribs. In 1900, the problem of sewage contamination was largely resolved when the city completed a major engineering feat. It reversed the flow of the Chicago River so that the water flowed away from Lake Michigan rather than into it. This project began with the construction and improvement of the Illinois and Michigan Canal, and was completed with the Chicago Sanitary and Ship Canal that connects to the Illinois River, which flows into the Mississippi River.

In 1871, the Great Chicago Fire destroyed an area about 4 miles (6.4 km) long and 1-mile (1.6 km) wide, a large section of the city at the time. Much of the city, including railroads and stockyards, survived intact, and from the ruins of the previous wooden structures arose more modern constructions of steel and stone. These set a precedent for worldwide construction. During its rebuilding period, Chicago constructed the world's first skyscraper in 1885, using steel-skeleton construction.

The city has grown significantly in size and population by incorporating many neighboring townships between 1851 and 1920, with the largest annexation happening in 1889, with five townships joining the city, including the Hyde Park Township, which now comprises most of the South Side of Chicago and the far southeast of Chicago, and the Jefferson Township, which now makes up most of Chicago's Northwest Side. The desire to join the city was driven by municipal services that the city could provide its residents.

Chicago's flourishing economy attracted huge numbers of new immigrants from Europe and migrants from the Eastern United States. Of the total population in 1900, more than 77% were either foreign-born or born in the United States of foreign parentage. Germans, Irish, Poles, Swedes and Czechs made up nearly two-thirds of the foreign-born population (by 1900, whites were 98.1% of the city's population).

Labor conflicts followed the industrial boom and the rapid expansion of the labor pool, including the Haymarket affair on May 4, 1886, and in 1894 the Pullman Strike. Anarchist and socialist groups played prominent roles in creating very large and highly organized labor actions. Concern for social problems among Chicago's immigrant poor led Jane Addams and Ellen Gates Starr to found Hull House in 1889. Programs that were developed there became a model for the new field of social work.

During the 1870s and 1880s, Chicago attained national stature as the leader in the movement to improve public health. City, and later, state laws that upgraded standards for the medical profession and fought urban epidemics of cholera, smallpox, and yellow fever were both passed and enforced. These laws became templates for public health reform in other cities and states.

The city established many large, well-landscaped municipal parks, which also included public sanitation facilities. The chief advocate for improving public health in Chicago was Dr. John H. Rauch, M.D. Rauch established a plan for Chicago's park system in 1866. He created Lincoln Park by closing a cemetery filled with shallow graves, and in 1867, in response to an outbreak of cholera he helped establish a new Chicago Board of Health. Ten years later, he became the secretary and then the president of the first Illinois State Board of Health, which carried out most of its activities in Chicago.

In the 1800s, Chicago became the nation's railroad hub, and by 1910 over 20 railroads operated passenger service out of six different downtown terminals. In 1883, Chicago's railway managers needed a general time convention, so they developed the standardized system of North American time zones. This system for telling time spread throughout the continent.

In 1893, Chicago hosted the World's Columbian Exposition on former marshland at the present location of Jackson Park. The Exposition drew 27.5 million visitors, and is considered the most influential world's fair in history. The University of Chicago, formerly at another location, moved to the same South Side location in 1892. The term "midway" for a fair or carnival referred originally to the Midway Plaisance, a strip of park land that still runs through the University of Chicago campus and connects the Washington and Jackson Parks.

During World War I and the 1920s there was a major expansion in industry. The availability of jobs attracted African Americans from the Southern United States. Between 1910 and 1930, the African American population of Chicago increased dramatically, from 44,103 to 233,903. This Great Migration had an immense cultural impact, called the Chicago Black Renaissance, part of the New Negro Movement, in art, literature, and music. Continuing racial tensions and violence, such as the Chicago Race Riot of 1919, also occurred.

The ratification of the 18th amendment to the Constitution in 1919 made the production and sale (including exportation) of alcoholic beverages illegal in the United States. This ushered in the beginning of what is known as the Gangster Era, a time that roughly spans from 1919 until 1933 when Prohibition was repealed. The 1920s saw gangsters, including Al Capone, Dion O'Banion, Bugs Moran and Tony Accardo battle law enforcement and each other on the streets of Chicago during the Prohibition era. Chicago was the location of the infamous St. Valentine's Day Massacre in 1929, when Al Capone sent men to gun down members of a rival gang, North Side, led by Bugs Moran.

Chicago was the first American city to have a homosexual-rights organization. The organization, formed in 1924, was called the Society for Human Rights. It produced the first American publication for homosexuals, Friendship and Freedom. Police and political pressure caused the organization to disband.

The Great Depression brought unprecedented suffering to Chicago, in no small part due to the city's heavy reliance on heavy industry. Notably, industrial areas on the south side and neighborhoods lining both branches of the Chicago River were devastated; by 1933 over 50% of industrial jobs in the city had been lost, and unemployment rates amongst blacks and Mexicans in the city were over 40%. The Republican political machine in Chicago was utterly destroyed by the economic crisis, and every mayor since 1931 has been a Democrat. From 1928 to 1933, the city witnessed a tax revolt, and the city was unable to meet payroll or provide relief efforts. Unemployed workers, relief recipients, and unpaid schoolteachers held huge demonstrations during the early years of the Great Depression. The fiscal crisis was resolved by 1933, and at the same time, federal relief funding began to flow into Chicago and enabled the city to complete construction of Lake Shore Drive, landscape numerous parks, construct 30 new schools, and build a thoroughly modernized State Street Subway. Chicago was also a hotbed of labor activism, with Unemployed Councils contributing heavily in the early depression to create solidarity for the poor and demand relief, these organizations were created by socialist and communist groups. By 1935 the Workers Alliance of America begun organizing the poor, workers, the unemployed. In the spring of 1937 Republic Steel Works witnessed the Memorial Day massacre of 1937 in the neighborhood of East Side.

In 1933, Chicago Mayor Anton Cermak was fatally wounded in Miami, Florida, during a failed assassination attempt on President-elect Franklin D. Roosevelt. In 1933 and 1934, the city celebrated its centennial by hosting the Century of Progress International Exposition World's Fair. The theme of the fair was technological innovation over the century since Chicago's founding.

When general prosperity returned in 1940, Chicago had an entrenched Democratic machine, a fully solvent city government, and a population that had enthusiastically shared mass culture and mass movements. Over one-third of the workers in Chicago's manufacturing sector were unionized. During World War II, the city of Chicago alone produced more steel than the United Kingdom every year from 1939 – 1945, and more than Nazi Germany from 1943 – 1945. The city's diversified industrial base made it second only to Detroit in the value—$24 billion—of war goods produced. Over 1,400 companies produced everything from field rations to parachutes to torpedoes, while new aircraft plants employed 100,000 in the construction of engines, aluminum sheeting, bombsights, and other components. The Great Migration, which had been on pause due to the Depression, resumed at an even faster pace in the second wave, as hundreds of thousands of blacks from the South arrived in the city to work in the steel mills, railroads, and shipping yards.

On December 2, 1942, physicist Enrico Fermi conducted the world's first controlled nuclear reaction at the University of Chicago as part of the top-secret Manhattan Project. This led to the creation of the atomic bomb by the United States, which it used in World War II in 1945.

Mayor Richard J. Daley, a Democrat, was elected in 1955, in the era of machine politics. In 1956, the city conducted its last major expansion when it annexed the land under O'Hare airport, including a small portion of DuPage County.

By the 1960s, white residents in several neighborhoods left the city for the suburban areas – in many American cities, a process known as white flight – as Blacks continued to move beyond the Black Belt.

While home loan discriminatory redlining against blacks continued, the real estate industry practiced what became known as blockbusting, completely changing the racial composition of whole neighborhoods. Structural changes in industry, such as globalization and job outsourcing, caused heavy job losses for lower-skilled workers. At its peak during the 1960s, some 250,000 workers were employed in the steel industry in Chicago, but the steel crisis of the 1970s and 1980s reduced this number to just 28,000 in 2015. In 1966, Martin Luther King Jr. and Albert Raby led the Chicago Freedom Movement, which culminated in agreements between Mayor Richard J. Daley and the movement leaders.

Two years later, the city hosted the tumultuous 1968 Democratic National Convention, which featured physical confrontations both inside and outside the convention hall, with anti-war protesters, journalists and bystanders being beaten by police. Major construction projects, including the Sears Tower (now known as the Willis Tower, which in 1974 became the world's tallest building), University of Illinois at Chicago, McCormick Place, and O'Hare International Airport, were undertaken during Richard J. Daley's tenure. In 1979, Jane Byrne, the city's first female mayor, was elected. She was notable for temporarily moving into the crime-ridden Cabrini-Green housing project and for leading Chicago's school system out of a financial crisis.

In 1983, Harold Washington became the first black mayor of Chicago. Washington's first term in office directed attention to poor and previously neglected minority neighborhoods. He was re‑elected in 1987 but died of a heart attack soon after. Washington was succeeded by 6th ward Alderman Eugene Sawyer, who was elected by the Chicago City Council and served until a special election.

Richard M. Daley, son of Richard J. Daley, was elected in 1989. His accomplishments included improvements to parks and creating incentives for sustainable development, as well as closing Meigs Field in the middle of the night and destroying the runways. After successfully running for re-election five times, and becoming Chicago's longest-serving mayor, Richard M. Daley declined to run for a seventh term.

In 1992, a construction accident near the Kinzie Street Bridge produced a breach connecting the Chicago River to a tunnel below, which was part of an abandoned freight tunnel system extending throughout the downtown Loop district. The tunnels filled with 250 million US gallons (1,000,000 m³) of water, affecting buildings throughout the district and forcing a shutdown of electrical power. The area was shut down for three days and some buildings did not reopen for weeks; losses were estimated at $1.95 billion.

On February 23, 2011, former Illinois Congressman and White House Chief of Staff Rahm Emanuel won the mayoral election. Emanuel was sworn in as mayor on May 16, 2011, and won re-election in 2015.Lori Lightfoot, the city's first African American woman mayor and its first openly LGBTQ Mayor, was elected to succeed Emanuel as mayor in 2019. All three city-wide elective offices were held by women for the first time in Chicago history: in addition to Lightfoot, the City Clerk was Anna Valencia and City Treasurer, Melissa Conyears-Ervin.

During its first hundred years, Chicago was one of the fastest-growing cities in the world. When founded in 1833, fewer than 200 people had settled on what was then the American frontier. By the time of its first census, seven years later, the population had reached over 4,000. In the forty years from 1850 to 1890, the city's population grew from slightly under 30,000 to over 1 million. At the end of the 19th century, Chicago was the fifth-largest city in the world, and the largest of the cities that did not exist at the dawn of the century. Within sixty years of the Great Chicago Fire of 1871, the population went from about 300,000 to over 3 million, and reached its highest ever recorded population of 3.6 million for the 1950 census.

From the last two decades of the 19th century, Chicago was the destination of waves of immigrants from Ireland, Southern, Central and Eastern Europe, including Italians, Jews, Poles, Greeks, Lithuanians, Bulgarians, Albanians, Romanians, Turkish, Croatians, Serbs, Bosnians, Montenegrins and Czechs. To these ethnic groups, the basis of the city's industrial working class, were added an additional influx of African Americans from the American South—with Chicago's black population doubling between 1910 and 1920 and doubling again between 1920 and 1930.

In the 1920s and 1930s, the great majority of African Americans moving to Chicago settled in a so‑called "Black Belt" on the city's South Side. A large number of blacks also settled on the West Side. By 1930, two-thirds of Chicago's black population lived in sections of the city which were 90% black in racial composition. Chicago's South Side emerged as United States second-largest urban black concentration, following New York's Harlem. Today, Chicago's South Side and the adjoining south suburbs constitute the largest black majority region in the entire United States.

Chicago's population declined in the latter half of the 20th century, from over 3.6 million in 1950 down to under 2.7 million by 2010. By the time of the official census count in 1990, it was overtaken by Los Angeles as the United States' second largest city.

The city has seen a rise in population for the 2000 census and is expected to have an increase for the 2020 census.

Per U.S. Census estimates as of July 2019, Chicago's largest racial or ethnic group is non-Hispanic White at 32.8% of the population, Blacks at 30.1% and the Hispanic population at 29.0% of the population

As of the 2010 census, there were 2,695,598 people with 1,045,560 households living in Chicago. More than half the population of the state of Illinois lives in the Chicago metropolitan area. Chicago is one of the United States' most densely populated major cities, and the largest city in the Great Lakes Megalopolis. The racial composition of the city was:

Chicago has a Hispanic or Latino population of 28.9%. (Its members may belong to any race; 21.4% Mexican, 3.8% Puerto Rican, 0.7% Guatemalan, 0.6% Ecuadorian, 0.3% Cuban, 0.3% Colombian, 0.2% Honduran, 0.2% Salvadoran, 0.2% Peruvian).

Chicago has the third-largest LGBT population in the United States. In 2015, roughly 4% of the population identified as LGBT. Since the 2013 legalization of same-sex marriage in Illinois, over 10,000 same-sex couples have wed in Cook County, a majority in Chicago.

Chicago became a "de jure" sanctuary city in 2012 when Mayor Rahm Emanuel and the City Council passed the Welcoming City Ordinance.

According to the U.S. Census Bureau's American Community Survey data estimates for 2008–2012, the median income for a household in the city was $47,408, and the median income for a family was $54,188. Male full-time workers had a median income of $47,074 versus $42,063 for females. About 18.3% of families and 22.1% of the population lived below the poverty line. In 2018, Chicago ranked 7th globally for the highest number of ultra-high-net-worth residents with roughly 3,300 residents worth more than $30 million.

According to the 2008–2012 American Community Survey, the ancestral groups having 10,000 or more persons in Chicago were:

Persons identifying themselves as "Other groups" were classified at 1.72 million, and unclassified or not reported were approximately 153,000.

The majority of Chicago's population have been and remain predominantly Christian, being the 4th-most religious metropolis in the United States after Dallas, Atlanta and Houston.Roman Catholicism and Protestantism are the largest branch (34% and 35% respectively), followed by Eastern Orthodoxy and Jehovah's Witnesses with 1% each. Chicago also has a sizable non-Christian population. Non-Christian groups include Irreligious (22%), Judaism (3%), Islam (2%), Buddhism (1%) and Hinduism (1%).

Chicago is the headquarters of several religious denominations, including the Evangelical Covenant Church and the Evangelical Lutheran Church in America. It is the seat of several dioceses. The Fourth Presbyterian Church is one of the largest Presbyterian congregations in the United States based on memberships. since the 20th century Chicago has also been the headquarters of the Assyrian Church of the East. In 2014 the Catholic Church was the largest individual Christian domination (34%), with the Roman Catholic Archdiocese of Chicago being the largest Catholic jurisdiction. Evangelical Protestantism form the largest theological Protestant branch (16%), followed by Mainline Protestants (11%), and historically Black churches (8%). Among denominational Protestant branches, Baptists formed the largest group in Chicago (10%); followed by Nondenominational (5%); Lutherans (4%); and Pentecostals (3%).

Non-Christian faiths accounted for 7% of the religious population in 2014. Judaism has 261,000 adherents which is 3% of the population being the second largest religion.

The first two Parliament of the World's Religions in 1893 and 1993 were held in Chicago. Many international religious leaders have visited Chicago, including Mother Teresa, the Dalai Lama and Pope John Paul II in 1979.