The Colony of British Columbia was created in 1858 when the Fraser River Gold Rush brought tens of thousands of gold miners north from California. The Colony of Vancouver Island already was in existence, having been created in 1849, with Victoria as its capital. The two colonies were separate, but James Douglas was given the dual commission to govern both of them. He favoured a site called Derby near Fort Langley as the first capital of the mainland colony.

However, its status as was short-lived because Colonel Richard Clement Moody, commanding officer of the Royal Engineers in BC, a group of specially trained soldiers who laid out roads, surveyed townsites and maintained law and order, determined Derby would be difficult to defend in the event of an attack from the United States. He searched for a better location and found it on the north side of the fraser River a few miles downstream from Fort Langley.

The new site was chosen because it was easy defended. Queensborough was the named bestowed on the new community which was carved out of dense forest. By the spring of 1859, Moody's company of Royal Engineers,  had begun clearing the trees that covered the banks of the Fraser River. The work was hard and expensive, each stump costing $3 to remove, a day's good wages at the time. The choice of a permanent name was left to Queen Victoria herself who chose New Westminster, in honour of Westminster in London, where the British Houses of Parliament are located.

In spite of its royal connections, it was many years, however, before New Westminster (sometimes called "the Royal City") prospered. Victoria had been made a free port and attracted trade away from her rival. Farms and industry were slow to start and many town lots were sold to buyers with no intention of settling on them. Revenue from the sale of these lots was to be applied to improving the town but instead was dispersed into the whole colony. For this reason New Westminster was turned into a city with its own council to handle its affairs in 1860.

Neither the Island nor the Mainland was doing very well. By the mid 1860s a depression had settled in when the production of new gold mines proved disappointing. Vancouver Island had a public debt of $300,000 and the mainland $1 million. The poor economic situation encouraged the union of the two colonies in 1866. New Westminster agreed to union on condition that they be made capital of the united colony, but in less than two years the Legislative Council transferred the capital to Victoria.