By 1872, there were eight thousand acres (32 km²) of land under cultivation in the valley and a thriving community had been built along the Salt River. Over the years irrigation companies sprung up and in the next three years three canal systems- the Maricopa, Grand, and Salt River Valley- were constructed, each allowing sustaining growth in the Valley. Visionary settlers began to imagine the potential income to be had by reclaiming the rich desert lying higher up the slope above the recently completed Grand Canal, and in 1882 the Arizona Canal Company was organized to do just that. The proposed canal would be larger than its approximately 80,000 acres (320 km²) - including the site that would soon be Peoria- to a more consistent and regulated water system.

The Arizona Canal Company tapped William J. Murphy, a former Union Army officer, to head construction on the forty-one-mile canal. The young engineer from Illinois had just completed the grading of a stretch of the Atlantic and Pacific Railway (which later became the Atchison, Topeka, and Santa Fe). Unable to pay Murphy in cash, the canal company offered him land and water rights to a large amount of property as compensation. With vision and foresight, he accepted and in 1885 the Arizona Canal was completed.

Murphy returned to Illinois to recruit settlers to transform the land into a sustainable farming community. Several residents of Peoria, Illinois were enticed by descriptions of the area’s climate and agricultural potential and soon purchased 5,000 acres (20 km²) among them. Four farming families left Illinois that fall to relocate to what is now Peoria. Before erecting simple adobe homes the settlers lived in large canvas tents. Peoria stood alone fourteen miles (21 km) from Phoenix, at the time a frontier city of approximately 3,500 people. An old desert frightening road connecting Phoenix to the Hassayampa River near present-day Wickenburg was the only major transportation route in the area until 1887, when a new road was laid out. This hundred foot-wide thoroughfare was named Grand Avenue, angled through the newly designed town sites of Alhambra, Glendale, and Peoria and quickly became the main route from Phoenix to Vulture Mine. The actual Peoria town site was owned by Joseph B. Greenhut and Deloss S. Brown. In 1890, the two men from Peoria, Illinois, acquired four sections of land from the government through the Desert Lands Act. They filed Peoria’s plot map with Maricopa County recorder on May 24, 1897, naming the settlement after their hometown.

The original plot map of Peoria included east and west streets (from south to north) Monroe, Madison, Jefferson, Washington, Jackson, Lincoln, Grant, and Van Buren. Streets going north and south were (from west to east) Almond (present day 85th Avenue), Peach (present day 84th Avenue), Orange (present day 83rd Avenue), Vine (present day 82nd Avenue), Walnut (present day 81st Avenue), the plot was roughly from present day Peoria and 85th Avenues to Monroe Street and 85th Avenue to Monroe Street and 81st Avenue to 81st Avenue and south of the Desert Cove alignment.

As soon as the proposed Peoria town site was surveyed a hand-dug water well was sunk in 1889 on the public right-of-way at the intersection of Grand Avenue and Washington Street. A “town well” provided water for local residents as well as the traveling public. Five years later the well was refashioned into a water tower and tank standing eighty-nine feet high. A social gathering place as well as source of water, the tower seemed to symbolize the young settlement’s growing sense of civic pride. On August 4, 1888 the Territory of Peoria, Arizona was granted a post office in its name and served a population of twenty-seven. Maricopa County supervisors defined the boundaries for School District Eleven, comprising forty-nine square miles, and the first class took place in an unoccupied brick store that faced north on Washington Street until Peoria’s first school building, a one-room structure completed in 1891. Attendance was erratic and thanks to a wagon full of nine children the district in question by county officials was saved.

Between 1891 and 1895 a spur line of the Santa, Prescott and Phoenix Railroad was placed in Peoria along with Phoenix, Glendale, Alhambra, Hesperla, and Marinette. This line helped encourage continued development of Peoria and was beneficial to the community. Peoria persuaded the rail company to build a small depot on 83rd Avenue just off Grand Avenue. This enabled area ranchers and farmers to ship their cattle and crops from the town site, as well as bring goods into the city. The depot was sold to the city of Scottsdale in 1972 where it now resides at McCormick Stillman Railroad Park.

In 1899 an atmosphere of permanence and stability for the settlement was created through the construction of the Presbyterian Church. Dedicated in 1900, the church, built in the Gothic Revival style and located at 83rd and Madison, is the oldest continuously used Presbyterian church in Arizona.

By 1917 Peoria, though still small, was slowly building into a solid commercial, agricultural, and residential location. Detracting from its growth, however, was its impermanent appearance, manifested in the tin and wood structures that had popped up around town in what was becoming known as the business district. Community leaders like J.A. Hammond and Frank Akin espoused changing the primary building material to brick since it looked better and was relatively more stable. Hammond and Akin believed that for Peoria to be acknowledged as a viable community, it had to have more substantial and attractive buildings. Due to the expense of brick it was hard to convince local business owners to invest in brick buildings. Hammond and Akins led by example, tearing down their own stores to build three new buildings that were attached and made of brick.

In July 1917, a fire broke out in a pool hall operated by E.E. Stafford, near Wilhelm’s Garage. The cause of the fire was never determined, but the fire engulfed almost the entire business district including Hammond and Akins newly constructed buildings. Glendale and Phoenix firefighters responded to the alarm, but they were too late. The damage was so severe it was as though the entire town was wiped out. Peoria was devastated. Ironically, the fire that destroyed the town’s new brick stores was incentive other business owners needed to rebuild using more sound building techniques and materials. This fire began the new era of sturdier, steadier, and more pleasing to the eye buildings. The timing of the fire was fortunate. The U.S. had just entered World War I a few months before, leading to increased production and prices around the country, especially for agricultural products. Peoria could not afford to fail to rebuild. Farmers had new money to spend, and ambitious store owners hastened to reestablish their businesses in order to take advantage of the local prosperity.

Around 1919 the Peoria Chamber of Commerce formed and operated as the informal government body until Peoria’s incorporation in 1954. The Peoria volunteer fire district formed in 1920. It remained all volunteer until the mid-1950s. Peoria’s business district flourished by the early 1920s with the building of the three-story Edwards Hotel in 1918, followed by the construction of the Mabel Hood building in May 1920 at the southwest corner of Washington Street and 83rd Avenue. The John L. Meyer or “flatiron” building was completed in June 1920 and the O.O. Fuel’s Paramount Theatre in July 1920 (serving as Fire Station 1 from 1950 until 2004). The Peoria Woman’s Club House, erected in April 1918, became a center for community-wide activities. The town’s first newspaper, The Peoria Enterprise, was printed weekly beginning November 14, 1917, through April 1921.