The early 19th century in Sydney was characterized by conflict and rebellion, particularly exemplified by the Castle Hill Rebellion in 1804. Led by Irish convicts, around 300 rebels attempted to march on Sydney to commandeer a ship for their escape to freedom. Despite their determination, the poorly armed insurgents faced a formidable response from approximately 100 troops and volunteers at Rouse Hill. The rebellion was quelled, resulting in the deaths of at least 39 convicts during the uprising and subsequent executions.

As the colony expanded into the fertile lands surrounding the Hawkesbury River, tensions between settlers and the Darug people escalated significantly from 1794 to 1810. Under the leadership of Pemulwuy, and later his son Tedbury, bands of Darug people engaged in a fierce campaign of resistance, burning crops, killing livestock, and raiding settler stores. The establishment of a military garrison on the Hawkesbury in 1795 marked the growing violence, with a death toll of 26 settlers and an estimated 200 Darug people from 1794 to 1800.

Conflict reignited from 1814 to 1816 as the colony extended into Dharawal territory in the Nepean region, leading to violent confrontations after the deaths of several settlers. In response, Governor Macquarie dispatched military detachments into the area, culminating in the tragic Appin massacre in April 1816, where at least 14 Aboriginal people were killed.

Following these tumultuous years, Sydney began to transform into a colonial city in the latter half of the 19th century. The New South Wales Legislative Council became a semi-elected body in 1842, and Sydney was officially declared a city the same year, establishing a governing council elected under a restrictive property franchise.

The discovery of gold in New South Wales and Victoria in 1851 initially disrupted the local economy as many men flocked to the goldfields. This migration allowed Melbourne to surpass Sydney as Australia’s largest city, igniting a lasting rivalry between the two. However, the influx of immigrants and wealth from gold exports drove a demand for housing, consumer goods, and urban amenities. The New South Wales government capitalized on this growth by heavily investing in infrastructure, including railways, trams, roads, ports, and schools.

From 1861 to 1891, Sydney's population surged from 95,600 to 386,900, transforming its urban landscape. Characteristic features emerged, with the growing population living in rows of terrace houses along narrow streets. New public buildings were constructed from sandstone, including significant institutions like the University of Sydney (1854–1861), the Australian Museum (1858–1866), the Town Hall (1868–1888), and the General Post Office (1866–1892). Elaborate coffee palaces and hotels flourished, contributing to the city’s vibrant social scene. Although daylight bathing at Sydney's beaches was banned, segregated bathing at designated ocean baths became a popular pastime.

Despite this growth, the 1890s were marked by economic depression, largely due to drought, the winding down of public works, and a financial crisis. Nevertheless, during this period, Sydney’s premier, George Reid, emerged as a pivotal figure in the movement towards federation, signaling another significant transformation in the city’s governance and identity.