The city was founded by the British Lieutenant Governor of the Punjab, Sir Charles James Lyall after whom it was originally named Lyallpur. Prior to the British making the area into an urban center, it largely consisted of various villages. However, the construction of various canals allowed the area to be irrigated. After the founding of the city, people were invited to the city with promises of land if they were to work on it. This allowed the city to grow rapidly. The city of Lyallpur came into being in 1880. The city is now well known as "Manchester of Pakistan" for its industrial activity. Faisalabad previously known as ‘Lyallpur’ was designed by Captain Poham Young, to imitate the Union Jack with eight roads originating from a large clock tower in the centre to eight separate bazaars.

As the progress of colonization stepped up, Lyallpur was given the status of Tehsil of Jhang District and its administration carried on the tents on the old Theh (Mound)

Of Pucca Mari near Tariqabad. The Majestic Clock Tower of Lyallpur was constructed out of the funds raised by the Sikh Zamindars who collected it at a rate of Rs.18.00 per square of land. The fund thus raised was handed over to the Municipal Committee which got it completed. In 1902, the population of the town had exceeded 4,000. A considerable number of houses and shops to cater to the ordinary needs of the population had been constructed. In 1903, decision to have an agricultural college was made. In the very next year, 1904, the new district of Lyallpur was constituted comprising of Tehsils of Lyallpur, Samundri and Toba Tek Singh with a subtehsil at Jaranwala which later turned into a full fledged Tehsil. In 1906, the District Headquarters began to function at Lyallpur and all the bazars and mohallas within the bounds of circular road were nearing completion and the city began to spread outside the circular road. The Town Committee which had come into being in 1904, was upgraded as Municipal Committee in 1909 and Deputy Commissioner was declared to be the lst Chairman. In 1916, the grain market saw its shops surging with customers. In the same year the civil Hospital was expanded. With the advent of the World War II, the political awakening sprinkled its influence over the city. Revolutionary meetings were held. Fiery speeches were made. Slogans were written on the walls.

In 1943, Quaid-i-Azam Mohammed Ali Jinnah came to Lyallpur and addressed a gathering of over 2 million in the Dhobi Ghat Ground. When Pakistan was accepted as an independent unit, the Muslims of Lyallpur held special prayers and distributed sweets and food among the poor on March 3, 1947.

The city grew into a strong industrial and agricultural centre and on the independence of Pakistan it emerged as a major urban area of the country. After independence, the city of Lyallpur marched rapidly on the path of progress. The city which had so far been known for its grain market, became a great commercial and industrial centre. The population of the city which in 1901 hardly touched the figure of a few thousands, soared up to millions. Medical and educational level was lifted up. In 1977, the name of the city was changed to Faisalabad, after the name of the late king of Saudi Arabia, Shah Faisal-bin-Abdul Aziz. In 1985, the city was upgraded as a division with the districts of Faisalabad, Jhang and Toba Tek Singh.