In 1864 the U.S. Congress passed the Organic Act that created Montana Territory and provided a basic government structure for the new territory, including a territorial governor, secretary and three judges appointed by the president of the United States, and a territorial legislature and non-voting representative to the U.S. House of Representatives elected by eligible voters in the territory. The act called for the legislature to meet annually for 40 days, except for the first legislature, which was granted a 60-day session. The territorial governor was to decide the date and places of the first election, apportion the members of the two houses and choose the date and the place for the first legislature to meet. Thereafter, the legislature itself was to decide these same things.

President Lincoln appointed Sidney Edgerton as Montana Territory's first governor. After conducting a census of the territory and appointing the seats of the Territorial Council and the House of Representatives, Territorial Governor Sidney Edgerton (a Republican) held the first territorial election on October 24, 1864. Though the census counted nearly 11,500 of the ~16,000 residents (with a Democrat majority) were in or near Virginia City and Alder Gulch, Edgerton wanted to remain in Bannack. Lacking a Territorial Secretary and with no federal funds, the first territorial legislature met in Bannack, from December 12, 1864 through February 9, 1865. The political atmosphere was full of enmity due to issues of the Civil War and the legislature was strongly divided between the Democrats and the Unionist Republicans, but they passed nearly 100 bills, crafting rudimentary laws to govern the territory, including pertinent laws to meet the needs of the people, such as prohibiting the counterfeiting of gold dust. These lawmakers also had the responsibility of selecting a territorial capital, which would help stabilize the new government. Bannack, Nevada City and Virginia City all wanted to be the seat of governance.

The act naming Virginia City as the new capital of Montana Territory was approved in February 1865, subject to change only by vote of the people. The February 4, 1865 Montana Post announced "We are glad to inform our readers that Virginia City is now the Capital of Montana Territory-de lege as well as de facto. This will of course tend to make property more valuable, and the future seat of Government will naturally be the favorite place of residence, for families of all connected with the various departments of the executive. Any other course would have been absurd and would have fastened a stigma on the Legislature which they wisely avoided by locating the capital in the centre of the wealth, population and intelligence of the Territory."

Virginia City had previously been chosen as the location of Montana Territory's first federal court, in 1864. As with the courts, the territorial legislature has no permanent location in Virginia City. "No building was ever erected specifically for the territorial government functions in Virginia City, even though a plot of land had been set aside for it. When the first legislature convened in 1866, the Council met on the second floor of a billiard hall, and the House met on the upper level of Stonewall Hall over a saloon. Territorial offices were located in Content Corner, also on a second floor. Upper levels of saloons, stores, and billiard halls were used for later sessions as well, at least a dozen different locations were used to house district courts."

President Andrew Johnson chose Civil War hero Thomas Francis Meagher as the first Territorial Secretary and he arrived in Montana in September 1865. Soon after, having to leave for Washington in Montana's interest, Governor Edgerton handed over the reins of government to Meagher, as acting governor. Thomas Meagher was a Union Democrat and seemed to be able to work with both parties for a while, but soon sided with the Democrats, resulting in much chaos. Meagher, called lawmakers together for an extraordinary session in Virginia City on March 5, 1866, and for two months they worked on new legislation to keep the territory operating.

Some political order was returned when Green Clay Smith was appointed to succeed Sidney Edgerton as territorial governor in October 1866. Problems with federal funding issues and negligence led the legislature to send Smith back to Washington to work on their behalf and to resolve conflicts. Montana was once again led by acting governor Thomas Meagher. In the winter of 1867, Meagher convened the legislature again, fueling the angry political situation, with Republicans calling the special sessions illegal. Wilber F. Sanders, a very outspoken Republican of Montana territory, went to Washington to convince Congress to rescind the laws created during Meagher's unlawful sessions, which they did.

Governor Smith returned to Virginia City and Meagher's political career ended with his mysterious death in July 1867. Smith called for another legislative session to replace the laws annulled by Congress. The Fourth Legislative Assembly was held in Virginia City in the winter of 1867. In this session they also created Meagher County, designated Deer Lodge as the site for territorial prison and Helena became an incorporated city. By 1870 a new governor, Benjamin F. Potts was appointed, serving thirteen years, helping stabilize territorial government even as the capital departed Virginia City.

A series of attempts began in 1867 to move the seat of territorial government away from Virginia City to the growing city of Helena. In 1867, a vote of the people kept the capital in Virginia City. Another vote was held in 1869, but the results of the election were destroyed by a fire and Virginia City remained the capital. The third election was held in 1874, offering voters two choices"for or against Helena." This election was contested when returns seemed to secure Virginia City's position once again. Discovering forgery in the Meagher County results and other political maneuvering paid for with private dollars, the Territory's Supreme Court ultimately supported Helena's claims and Helena became Montana's new seat of government.

Erected by Montana Heritage Commission, Montana History Foundation.