The Hudson Bay Company expanded to the west coast by forming the Columbia District to oversee its operations in what was once known as the Oregon Country. Forts would be built in the District at central fur gathering locations, accessible to a large number of tribes. In 1824, Fort Vancouver was built a few miles from the Columbia River to the south and Fort Langley was built in 1827 on the Fraser River to the North. The Cowlitz Portage, an overland and shortcut route was soon created establishing a vital link between the two forts. After the attack and murder of Alexander Mackenzie and four men in his party on this route, it was determined a fort located at a half way point was needed for safety and security reasons.

The new midway location was at Nisqually, chosen for its excellent ship anchorage, its convenience for overland travel, the friendliness of local Tribes and its prairies for grazing animals and growing crops. The first building was a storehouse of fifteen by twenty feet built on the beach next to the Sequalitchew Indian Village. Nisqually House as it was known was built in April 1832, and had three men with a few supplies left behind to manage it. One year later in May of 1833, Chief Trader Archibald MacDonald returned with Dr. William Fraser Tolmie and seven men to begin the construction of a permanent fort. At this time the Journal of Occurrences was started. The Journal contained a written record maintained by fort clerks of all major events, trade sales, weather and observations of life at Fort Nisqually. Fort Nisqually provided a welcome permanent trading location for tribes from as far away as Yakima over the mountains to Whidbey Island and often farther north. The Hudson Bay men continued a system that was familiar to native people, which was trading or bartering for goods both sides wanted from each other. The Indians brought furs, food and their labor in exchange for commodities such as, axes, guns, traps, jewellery, cloth and the most highly sought after trade item, the Hudson Bay Blanket. This system was made up of Native people as fur-trappers and Hudson Bay men as the fur-gatherers. Fort Nisqually became the main supply center for both the Indians and the early American settlers in the lower Puget Sound area.

The fort had a square stockade made of pickets about twenty feet high and bastions (tower like structures) at each of the four corners. Inside, protected by the outer walls were a kitchen, dwellings, an Indian hall and farm buildings. A grist mill was located nearby outside the walls. Another Indian hall was later built outside the fort. A whipsaw pit was created in a depression about 10 yards outside the fort, which produced the boards used for doors, shelving, gates and rough furniture.

The men who worked for the Hudson Bay at Fort Nisqually were from diverse backgrounds. There were French Canadians, Scottish, English and Hawaiian men, a Hispanic and West Indies Black man. Single men soon married local Indian women and today many Indian families can trace their heritage directly back to an employee of Fort Nisqually.

The original 1833 fort site soon proved to be too small for its operations, and the fort was relocated in 1843 about a mile from the original fort, closer to Edmonds Marsh and Sequalitchew Creek. This new site was chosen because it was close to a water source and timber.

Fort Nisqually never served as a military outpost but was entirely a retail operation by a private company (Hudson Bay Company).