Ciudad Vieja began as the fortified nucleus of Montevideo. Spanish authorities established the settlement in the 1720s to counter Portuguese expansion around the Río de la Plata and secure a strategic harbor. Governor Bruno Mauricio de Zabala directed the foundation, while families brought from Buenos Aires and the Canary Islands helped populate the town. Soldiers, sailors, enslaved Africans, Indigenous people, artisans, merchants, and laborers built streets, walls, houses, churches, warehouses, and defenses on the peninsula.

The colonial grid centered on the plaza now known as Plaza Matriz, with the cabildo and principal church expressing civil and religious authority. Walls and a citadel controlled the landward entrance, while batteries protected the port. Montevideo's harbor supported hides, food, military supply, and regional commerce, including trafficking in enslaved people. Rivalry with Buenos Aires shaped its economy. British invasions in 1807 and wars of independence demonstrated that control of the walled city carried wider importance across the estuary.

After independence and the creation of Uruguay, the old fortifications restricted urban growth. Most walls were demolished beginning in 1829, and Montevideo expanded eastward as the Ciudad Nueva. The former colonial center became a commercial and financial district tied to the port. Immigration from Europe and elsewhere transformed its population and architecture. Banks, exchanges, offices, theaters, hotels, tenements, shops, and new public buildings replaced many colonial structures while retaining the original street network.

Twentieth-century shifts moved residents and businesses to other parts of the capital. Some buildings deteriorated or were demolished, and economic inequality became highly visible beside important institutions. At the same time, artists, preservationists, residents, and public agencies advocated for the district's architectural and cultural value. Restoration of the Cabildo, cathedral, Solís Theatre, market buildings, façades, and public spaces supported museums and tourism, while adaptive reuse brought offices, studios, housing, restaurants, and cultural organizations back into older structures.

Ciudad Vieja remains a working neighborhood whose heritage cannot be separated from port activity, housing, street life, and social change. Surviving colonial fragments stand beside nineteenth-century commercial architecture and modern infill. Conservation faces salt air, vacancy, speculative development, infrastructure needs, and tension between tourism and residents' needs. The district is significant because Uruguay's capital grew outward from this small fortified peninsula. Its grid records Spanish strategy, slavery, independence, mass immigration, financial expansion, decline, and repeated efforts to make the historic center habitable rather than merely picturesque for visitors, workers, and permanent residents who remain there today.