Prior to the expansion westward of settlers, the prairie was covered with buffalo grass. Plains Indians, descendants of indigenous peoples who occupied the area for thousands of years, lived in and hunted along Salt Creek. The Pawnee, which included four tribes, lived in villages along the Platte River. The Great Sioux Nation, including the Ihanktowan-Ihanktowana and the Lakota, located to the north and west, used Nebraska as a hunting and skirmish ground, although they did not have any long-term settlements in the state. An occasional buffalo could still be seen in the plat of Lincoln in the 1860s.

Lincoln was founded in 1856 as the village of Lancaster and became the county seat of the newly created Lancaster County in 1859. The village was sited on the east bank of Salt Creek. The first settlers were attracted to the area due to the abundance of salt. Once J. Sterling Morton developed his salt mines in Kansas, salt in the village was no longer a viable commodity. Captain W. T. Donovan, a former steamer captain, and his family settled on Salt Creek in 1856. In the fall of 1859, the village settlers met to form a county. A caucus was formed and the committee, which included Captain Donovan, selected the village of Lancaster to be the county seat. The county was named Lancaster. After the passage of the 1862 Homestead Act, homesteaders began to inhabit the area. The first plat was dated August 6, 1864.

By the close of 1868, Lancaster had a population of approximately 500 people. The township of Lancaster was renamed Lincoln with the incorporation of the city of Lincoln on April 1, 1869. In 1869, the University of Nebraska was established in Lincoln by the state with a land grant of about 130,000 acres. Construction of University Hall, the first building, began the same year.

Nebraska was granted statehood on March 1, 1867. The capital of the Nebraska Territory had been Omaha since the creation of the territory in 1854; however, most of the territory's population lived south of the Platte River. After much of the territory south of the Platte River considered annexation to Kansas, the territorial legislature voted to locate the capital city south of the river and as far west as possible. Prior to the vote to remove the capital city from Omaha, a last ditch effort by Omaha Senator J. N. H. Patrick attempted to derail the move by having the future capital city named after recently assassinated President Abraham Lincoln. Many of the people south of the Platte River had been sympathetic to the Confederate cause in the recently concluded Civil War. It was assumed that senators south of the river would not vote to pass the measure if the future capital was named after the former president. In the end, the motion to name the future capital city Lincoln was ineffective in blocking the measure and the vote to change the capital's location south of the Platte River was successful with the passage of the Removal Act in 1867.

The Removal Act called for the formation of a Capital Commission to locate a site for the capital on state-owned land. The Commission, composed of Governor David Butler, Secretary of State Thomas Kennard and State Auditor John Gillespie, began to tour sites on July 18, 1867, for the new capital city. The village of Lancaster was chosen, in part due to the salt flats and marshes. Lancaster had approximately 30 residents. Disregarding the original plat of the village of Lancaster, Thomas Kennard platted Lincoln on a broader scale. The plat of the village of Lancaster was not dissolved nor abandoned; it became Lincoln when the Lincoln plat files were finished September 6, 1867. To raise money for the construction of a capital city, a successful auction of lots was held.

Newcomers began to arrive and Lincoln's population grew. The Nebraska State Capitol was completed on December 1, 1868; a two-story building constructed with native limestone with a central cupola. The Kennard house, built in 1869, is the oldest remaining building in the original plat of Lincoln.

In 1888, a new capitol building was constructed on the site of the first capitol. The new building replaced the structurally unsound former capitol. The second capitol building was a classical design by architect William H. Willcox. Construction began on a third capitol building in 1922. Bertram G. Goodhue was selected in a national competition as its architect. By 1924, the first phase of construction was completed and state offices moved into the new building. In 1925, the Willcox-designed capitol building was razed. The Goodhue-designed capitol was constructed in four phases, with the completion of the fourth phase in 1932. The capitol is the second tallest capitol building in the United States.

The worldwide economic depression of 1890 saw Lincoln's population fall from 55,000 to 40,169 by 1900.(per 1900 census). Volga-German immigrants from Russia settled in the North Bottoms neighborhood and as Lincoln expanded with the growth in population, the city began to annex nearby towns. Normal was the first town annexed in 1919.Bethany Heights, incorporated in 1890, was annexed in 1922. In 1926, the town of University Place was annexed. College View, incorporated in 1892, was annexed in 1929. Union College, a Seventh Day Adventist institution, was founded in College View in 1891. In 1930, Lincoln annexed the town of Havelock. Havelock actively opposed annexation to Lincoln and only relented due to a strike by the Burlington railroad shop workers which halted progress and growth for the city.

The Burlington and Missouri River Railroad's first train arrived in Lincoln on June 26, 1870, and the Midland Pacific (1871) and the Atchison and Nebraska (1872) soon followed. The Union Pacific began service in 1877. The Chicago and North Western and Missouri Pacific began service in 1886. The Chicago, Rock Island and Pacific extended service to Lincoln in 1892. Lincoln became a rail hub.

As automobile travel became more common, so did the need for better roads in Nebraska and throughout the U.S. In 1911, the Omaha-Denver Trans-Continental Route Association, with support from the Good Roads Movement, established the Omaha-Lincoln-Denver Highway (O-L-D) through Lincoln. The goal was to have the most efficient highway for travel throughout Nebraska, from Omaha to Denver.

In 1920, the Omaha-Denver Association merged with the Detroit-Lincoln-Denver Highway Association. As a result, the O-L-D was renamed the Detroit-Lincoln-Denver Highway (D-L-D) with the goal of having a continuous highway from Detroit to Denver. The goal was eventually realized by the mid-1920s; 1,700 mi (2,700 km) of constantly improved highway through six states. The auto route's success in attracting tourists led entrepreneurs to build businesses and facilities in towns along the route to keep up with the demand. In 1924, the D-L-D was designated as Nebraska State Highway 6. In 1926, the highway became part of the Federal Highway System and was renumbered U.S. Route 38. In 1931, U.S. 38 was renumbered as a U.S. 6/U.S. 38 overlap and in 1933, the U.S. 38 route designation was dropped.

In the early years of air travel, Lincoln had three airports and one airfield.Union Airport, was established northeast of Lincoln in 1920. The Lincoln Flying School was founded by E.J. Sias in a building he built at 2145 O Street.Charles Lindbergh was a student at the flying school in 1922. The flying school closed in 1947. Some remnants of the Union Airport are still visible between N. 56th and N. 70th Streets, north of Fletcher Avenue; mangled within a slowly developing industrial zone. Arrow Airport was established around 1925 as a manufacturing and test facility for Arrow Aircraft and Motors Corporation, primarily the Arrow Sport. The airfield was near Havelock; or to the west of where the North 48th Street Small Vehicle Transfer Station is today. Arrow Aircraft and Motors declared bankruptcy in 1939 and Arrow Airport closed roughly several decades later. An Arrow Sport is on permanent display, hanging in the Lincoln Airport's main passenger terminal.

As train, automobile, and air travel increased, business flourished and the city prospered. Lincoln's population increased 38.2% from 1920 to a population of 75,933 in 1930. In 1930, the city's small municipal airfield was dedicated to Charles Lindbergh and named Lindbergh Field for a short period as another airfield was named Lindbergh in California. It was north of Salt Lake, in an area known over the years as Huskerville, Arnold Heights and Air Park; and was approximately within the western half of the West Lincoln Township. The air field was a stop for United Airlines in 1927 and a mail stop in 1928.

In 1942, the Lincoln Army Airfield was established at the site. During World War II, the U.S. Army used the facility to train over 25,000 aviation mechanics and process over 40,000 troopers for combat. The Army closed the base in 1945, but the Air Force reactivated it in 1952 during the Korean War. In 1966, after the Air Force closed the base, Lincoln annexed the airfield and the base's housing units. The base became the Lincoln Municipal Airport, and later the Lincoln Airport, under the Lincoln Airport Authority's ownership. The two main airlines that served the airport were United Airlines and Frontier Airlines. The Authority shared facilities with the Nebraska National Guard, who continued to own parts of the old Air Force base.

In 1966, Lincoln annexed the township of West Lincoln, incorporated in 1887. West Lincoln voters rejected Lincoln's annexation until the state legislature passed a bill in 1965 that allowed cities to annex surrounding areas without a vote.

The downtown core retail district from 1959 to 1984 saw profound changes as retail shopping moved from downtown to the suburban Gateway Shopping Mall. In 1956, Bankers Life Insurance Company of Nebraska announced plans to build a $6 million shopping center next to their new campus on Lincoln's eastern outskirts. Gateway Shopping Center, now called Gateway Mall, opened at 60th and O streets in 1960. By 1984, 75% of Lincoln's revenue from retail sales tax came from within a one-mile radius of the Mall. However, the exodus of retail and service businesses led the downtown core to decline and deteriorate.

In 1969, the Nebraska legislature legislated laws for urban renewal. Soon afterward, Lincoln began a program of revitalization and beautification. Most of the urban renewal projects focused on downtown and the near South areas. Many ideas were considered and not implemented. Successes included Sheldon Memorial Art Gallery, designed by Philip Johnson; new branch libraries, new street lighting, the First National Bank Building and the National Bank of Commerce Building designed by I.M. Pei.

In 1971, an expansion of Gateway Mall was completed. Lincoln's first woman mayor, Helen Boosalis, was elected in 1975. Mayor Boosalis was a strong supporter of the revitalization of Lincoln with the downtown beautification project being completed in 1978. In 1979, the square-block downtown Centrum was opened and connected to buildings with a skywalk. The Centrum was a two-level shopping mall with a garage for 1,038 cars. With the beautification and urban renewal projects, many historic buildings were razed in the city. In 2007 and 2009, the city of Lincoln received beautification grants for improvements on O and West O Streets, west of the Harris Overpass, commemorating the history of the D-L-D.

After the fall of Saigon in 1975, Vietnamese refugees created a large residential and business community along the 27th Street corridor alongside Mexican eateries and African markets. Lincoln was designated as a "Refugee Friendly" city by the U.S. Department of State in the 1970s. In 2000, Lincoln was the twelfth-largest resettlement site per capita in the country. As of 2011, Lincoln had the largest Karen (Burmese ethnic minority) population in the United States (behind Omaha), with an estimated 1,500 in 2019. As of the same year, Nebraska was one of the largest resettlement sites for the people of Sudan, mostly in Lincoln and Omaha. In 2014, some social service organizations estimated that up to 10,000 Iraqi refugees had resettled in Lincoln. In recent years, Lincoln had the largest Yazidi (Iraqi ethnic minority) population in the U.S., with over 2,000–3,000 having settled within the city (as of late 2017). In a three-year period, the immigrant and refugee student population at Lincoln Public Schools increased 52% - from 1,606 students in 2014, to 2,445 in 2017.

The decade from 1990 to 2000 saw a significant rise in population from 191,972 to 225,581. North 27th Street and Cornhusker Highway were redeveloped with new housing and businesses built. The boom housing market in south Lincoln created new housing developments including high end housing in areas like Cripple Creek, Willamsburg and The Ridge. The shopping center Southpointe Pavilions was completed in competition of Gateway Mall.

In 2001, Westfield America Trust purchased the Gateway Mall and named it Westfield Shoppingtown Gateway. In 2005, the company renamed it the Westfield Gateway. Westfield made a $45 million makeover of the mall in 2005 including an expanded food court, a new west-side entrance and installation of an Italian carousel. In 2012, Westfield America Trust sold Westfield Gateway to Starwood Capital Group. Starwood reverted the mall's name from Westfield Gateway to Gateway Mall and has made incremental expansions and renovations.

In 2015, ALLO Communications announced it would bring ultra-high speed fiber internet to the city. Speeds up to 1 Gigabit per second were available for business and households by building off of the city's existing fiber network. Construction on the citywide network began in March 2016 and was estimated to be complete by 2019, making it one of the largest infrastructure projects in the United States. Telephone and cable TV service were also included, making it the third company to compete for such services within the same Lincoln footprint. In April 2016, Windstream Communications announced that 2,300 customers in Lincoln had 1 Gigabit per second fiber internet with an expected expansion of services to 25,000 customers by 2017. On November 29, 2017, Lincoln was named a Smart Gigabit Community by U.S. Ignite Inc. and in early 2018, Spectrum joined the ranks of internet service providers providing 1 gigabit internet within the city.

Lincoln is the second-most-populous city in Nebraska. The U.S. government designated Lincoln in the 1970s as a refugee-friendly city due to its stable economy, educational institutions, and size. Since then, refugees from Vietnam settled in Lincoln, and further more refugees came from other countries . In 2013, Lincoln was named one of the "Top Ten most Welcoming Cities in America" by Welcoming America.

As of the census of 2010, the city had 258,379 people, 103,546 households, and 60,300 families. The population density was 2,899.6 inhabitants per square mile (1,119.5/km²). There were 110,546 housing units at an average density of 1,240.6 per square mile (479.0/km²). The city's racial makeup was 86.0% White, 3.8% African American, 0.8% Native American, 3.8% Asian, 0.1% Pacific Islander, 2.5% from other races, and 3.0% from two or more races. Hispanic or Latino of any race were 6.3% of the population.

There were 103,546 households, of which 27.7% had children under the age of 18 living with them, 44.0% were married couples living together, 10.2% had a female householder with no husband present, 4.1% had a male householder with no wife present, and 41.8% were non-families. 31.3% of all households were made up of individuals, and 8.8% had someone living alone who was 65 years of age or older. The average household size was 2.36 and the average family size was 3.01.

The median age in the city was 31.8 years. 22.7% of the city's population was under age 18; 15.7% was from age 18 to 24; 27.9% was from age 25 to 44; 22.9% was from age 45 to 64; and 10.7% was age 65 or older. The city's gender makeup was 50.0% male and 50.0% female.