A devastating flood destroyed Fort Garry in 1826, prompting the Company's then-governor, George Simpson, to search for a safer location down river.

Governor Simpson chose the site of Lower Fort Garry because of its high ground and location below the St. Andrew's Rapids, eliminating a time-consuming portage of heavy fur packs and York boats.

Although the Lower Fort did trade a small amount of furs, its main purpose was as a supply depot for the Red River settlement and the surrounding Cree, Anishinaabe, Métis, and European (mostly Orkney Scot) populations.

The post traded essential manufactured goods to the farmers and hunters for produce that was in turn used for provisioning company treks into the north.

On August 3, 1871, the first treaty in Western Canada was established between the federal government and seven chiefs of the Ojibway (Saulteaux) and Swampy Cree First Nations at Lower Fort Garry.

The treaty's intent was to ensure the peaceful settlement of the prairies by European immigrants, while providing First Nations people with land, access to resources and other necessities for their survival.

Many of the North-West Mounted Police of 1873–74 had been there already during the rebellion in 1870, including Inspector James F. MacLeod, who had met his fiancée, Mary Drever, at Lower Fort Garry on the previous trip.

One of the mental hospital's most infamous residents was Honoré Jaxon, Louis Riel's secretary who was found not guilty of treason by reason of insanity after the North-West Rebellion.