However, after the passing of the Municipalities Act, 1867 which allowed for residents to petition the government to secede as their own council area, the idea of a separate municipal council for the areas of Vaucluse and Watsons Bay at the northern end of the Borough of Woollahra gained ground amongst a large group of local residents.

In late 1894 a petition was published in the Government Gazette of the State of New South Wales, calling for the area's separation as the "Borough of Vaucluse" on the basis that, among a general sense of a lack of representation and equitable distribution of rate revenue investment, "that the interests of the residents of the area ... and of the remaining portion of the said Borough of Woollahra are entirely different, and that they form virtually separate communities".

[2][3] Despite the objections of Woollahra Council, on 29 March 1895 the Borough of Vaucluse was proclaimed by the Governor of New South Wales, with the southern boundary comprising Towns Road and Bay View Hill Street and the eastern boundary being Old South Head Road.

[15][16] Completed in early 1910 by builders Pocock & Stevens to a cost of £2,500, the new Town Hall was officially opened on 20 April 1910 by the Secretary for Public Works, Charles Lee.

[23][24][25][26] By the end of the Second World War, the NSW Government had realised that its ideas of infrastructure expansion could not be effected by the present system of the mostly-poor and smaller inner-city municipal councils and the Minister for Local Government, Joseph Cahill, passed a bill in 1948 that abolished a significant number of those councils.