An 1858 treaty between the Sioux people and the U.S Government gave the U.S. ownership of the entirety of what is now South Dakota. American settlers streamed in to the area. Major towns Sioux Falls (1856) and Yankton (1859) sprang up. The completion of a railway to Yankton in 1873 accelerated settlement in the area, as did the discovery of gold in the Black Hills the following year.

After a few false starts, Congress created the Dakota Territory, in 1861. An armed struggle between Americans and Native Americans called the War of the Outbreak flared up off and on from 1862 to 1865; South Dakota Americans sent a number of militia and cavalry to fight in this struggle. A further struggle, the Red Cloud War, erupted in 1866 and lasted until 1868.

In 1874, an exploration led by Col. George Armstrong Custer discovered gold in the Black Hills. Deadwood and other towns sprang up in the wake of the gold discovery. Population in and settlement of South Dakota accelerated, even to the extent of breaking the terms of a treaty that the U.S. Government had made with the Sioux. This marked yet another series of struggles between Americans and Native Americans.

In 1883, the Dakota Territory consisted of what is now North Dakota and what is now South Dakota. Congress had created the separate Montana Territory and Wyoming Territory. In that same year, the territorial government moved the territorial government from Yankton, in the southern part of the Dakota Territory, to Bismarck, in the northern part of the territory. South Dakota responded by applying for statehood, going so far as to write and approve a constitution, elect a full allotment of state officers, and even select representatives to serve in the U.S. Senate. Congress did not approve the application.

The federal government changed its mind in 1889, and South Dakota joined the Union on November 2, the same day as North Dakota. The first capital of South Dakota was Pierre.