The University of Illinois, originally named "Illinois Industrial University", was one of the 37 universities created under the first Morrill Land-Grant Act, which provided public land for the creation of agricultural and industrial colleges and universities across the United States. Among several cities, Urbana was selected in 1867 as the site for the new school. From the beginning, President John Milton Gregory's desire to establish an institution firmly grounded in the liberal arts tradition was at odds with many state residents and lawmakers who wanted the university to offer classes based solely around "industrial education". The university opened for classes on March 2, 1868, and had two faculty members and 77 students.

By 1967 the University of Illinois system consisted of a main campus in Champaign-Urbana and two Chicago campuses, Chicago Circle (UICC) and Medical Center (UIMC), and people began using "Urbana-Champaign" or the reverse to refer to the main campus specifically. The university name officially changed to the "University of Illinois at Urbana-Champaign" by 1977. While this was a reversal of the commonly used designation for the metropolitan area, "Champaign-Urbana," most of the campus is located in Urbana. The name change established a separate identity for the main campus within the University of Illinois system, which today includes campuses in Springfield (UIS) and Chicago (UIC) (formed by the merger of UICC and UIMC).

In 1998, the Hallene Gateway Plaza was dedicated. The Plaza features the original sandstone portal of University Hall, which was originally the fourth building on campus. In recent years, state support has declined from 4.5% of the state's tax appropriations in 1980 to 2.28% in 2011, a nearly 50% decline. As a result, the university's budget has shifted away from relying on state support with nearly 84% of the budget coming from other sources in 2012.

On March 12, 2015, the Board of Trustees approved the creation of a medical school, the first college created at Urbana-Champaign in 60 years. The Carle-Illinois College of Medicine began classes in 2018.