When confirmed gold discoveries occurred in the Colorado Rockies in 1859 in Boulder Creek Canyon, Clear Creek Canyon, and South Park (Tarryall, Fairplay, Buckskin Joe), Americans began rushing to the gold fields, hoping to relieve some of the financial stress from the economic panic in 1857. As a result of thousands of people entering the Pike's Peak region, several men incorporated themselves into the Colorado City Town Company on August 11, 1859. Since Ute Pass was the best route at the time to the South Park gold fields, the company located Colorado City at the base of Pike's Peak on Fountain Creek, hoping to become the major mining supply town. The Town Company sent M.S. Beach and R.E. Cable to locate the town site; and on August 12, 1859, Beach and Cable officially claimed the site of Colorado City.

Among the more prominent Colorado City founders were Lewis N. Tappan, Anthony Bott, George A. Bute, Melancthon S. Beach, Henry M. Fosdick, S.W. Wagoner, and Albert D. Richardson. Henry M. Fosdick surveyed and platted the town, one mile wide and two miles long with Fountain Creek running through the southern portion of the town.