The City of Sidney was founded in 1867 by the Union Pacific and named for Sidney Dillon, a railroad attorney. The city grew up around the Sidney Barracks, a military outpost with a primary function of protecting the Union Pacific Railroad track layers against the threat of hostile Indians. The post was initially a block house on a bluff with soldiers residing in nearby tents. In 1869 the post was relocated to the present site and the following year it was renamed Fort Sidney.
In the 1870s Fort Sidney became a major strategic point as the initial supply depot on the 267-mile Sidney-Blackhills trail which allowed military and civilian traffic to reach Fort Robinson, Red Cloud Indian Agency, Deadwood, SD and the Black Hills gold fields. By 1875 the fort contained quarters for three companies, five officer's quarters, a hospital, guardhouse, bakery, laundry, stables and other structures.