The very first name of Faisalabad was Chenab Colony, then Sandalbar, then Lyallpur and currently is Faisalabad. Faisalabad was once part of ancient district of Jhang and Sandalbar, a 50 square kilometres (19 sq mi) part mainly consisted of thick forests and wild tribes. The tract from Shahdara to Shorekot, Sangla Hill to Toba Tek Singh, was traditionally called Sandalbar.

In 1880, a colonial officer called Captain Poham Young proposed a new town, with a design based on the Union Jack, with eight roads radiating from a large clock tower in the centre. The eight roads developed into eight separate bazaars. The construction of artificial canals allowed the surrounding areas to be irrigated. The town grew rapidly as people were invited with promises of land.

In 1895 the rail link between Wazirabad and Lyallpur was completed. In 1896, Lyallpur was given the status of a tehsil of the Jhang District, and its administration was carried on in tents on the old Theh (Mound) of Pucca Mari near Tariqabad. The majestic Clock Tower was constructed out of the funds raised by the Sikh landowners, who collected it at a rate of Rs. 18 per square of land. The fund thus raised was handed over to the Town Committee, which undertook to complete the project.

Pakistan Railways, Locomotive parked at Lyallpur Railway Station c. 1949

By 1902 the population of the town exceeded 4,000, including the new sialkoti jutts particularly Bajwas, Kalloos, Cheemas & Chattas came to establish the agriculture land of chenaab (Called Chena bar). Houses and shops had been constructed to cater to the ordinary needs of the population. In 1903 it was decided to establish an agricultural college. In 1904 the new district of Lyallpur was constituted, composed of the tehsils of Lyallpur, Samundri and Toba Tek Singh, with a subtehsil at Jaranwala which later became a full tehsil. By 1906, the district headquarters began to function in Lyallpur and all the bazaars and settlements within the bounds of a ring road were nearing completion. The city began to spread outside the circular road. The Town Committee was upgraded to a Municipal Committee in 1909 and the Deputy Commissioner was appointed as its first chairman. In 1916, the grain market saw its shops surging with customers. In the same year the civil hospital was expanded. With the advent of World War II, there was an increase in political awareness across the city. Revolutionary meetings were held, fiery speeches made, and slogans written on walls.

The First Colonisation officer Raja Aurangzeb Khan made sure that no individual in this district owned more than 25 squares (625 acres) of land. The merit or method of allotting the land was to check each individual's hand who was applying for some land, and if the hands showed that individual had worked hard in the past, only then was land given to him, which has led to a district where there aren't any big land owners, as the land has been equally distributed amongst hard working men and it is their hard work that has led to Faisalabad becoming the third richest district in Pakistan.^{[citation needed]}

The main roads in and out of the city were kept 1-acre (4,000 m²) wide; since creation of Pakistan a lot of roads have been taken over by land mafia. The industrial areas were kept on the East of the main canal which is present day People's Colony and Madina town. The urban areas were kept to the west of the canal, as sweet ground water flowed from the canal to the river Chenab, the consequence of changing former industrial area into urban areas has been a lack of proper drinkable water for those living in peoples colony and Madina town.

The prestigious Chenab Club, a social club built during the reign of the British Empire

In 1943, Mohammad Ali Jinnah came to Lyallpur and addressed a gathering of over 2 million in Dhobi Ghat Grounds. After independence, the city of Lyallpur enjoyed considerable development, and became a major commercial and industrial center. The population grew quickly past one million. There was an expansion of the provision of health and education in the city. In 1977, the name of the city was changed to "Faisalabad" (City of Faisal), in honour of the late King Faisal of Saudi Arabia, who was held in high regard in Pakistan. In 1985, the district was upgraded to a division with the new districts of Faisalabad, Jhang and Toba Tek Singh.