The Fort Sanders neighborhood takes its name from the Battle of Fort Sanders, an important Civil War battle. The neighborhood developed in the 1880s as the suburb of West Knoxville. Adjacent to downtown and the University of Tennessee, it became the home of many important civic and governmental leaders, merchants, professionals and university professors.

Fort Sanders was a temporary earthen structure built by the Union Army engineers in 1863 to defend Knoxville from Confederate attack. It was first named Fort Loudon, but then renamed in honor of General William Sanders, who died in November of 1863 in a preliminary skirmish with General James Longstreet's troops west of the city of Kingston Pike. Fort Sanders was located at the corner of Laurel Avenue and Seventeenth Street. The Battle of Fort Sanders lasted about twenty minutes, with 813 Confederate soldiers killed, wounded or captured. The battle guaranteed Union control over East Tennessee. The remains of the Fort had become the site of residential development by the early twentieth century. Seventeenth Street currently travels over one of the Fort's trench lines. Two markers commemorate the battle.

Fort Sanders developed from two subdivisions. White's Addition began at the Tennessee River and extended north to Laurel Avenue. Ramsey's Addition was north of Laurel, along Highland and Forest. Although both of these parcels extended west to Twenty-third Street, development stopped around Seventeenth Street.

Residents of nineteenth century Fort Sanders included wholesale grocer Martin Luther Ross, Tennessee Attorney General George Pickle, both in White's Addition, and marble producer L J. Craig, Jr. and real estate developer Barnabas Braine, both in Ramsey's Addition. Other prominent Fort Sanders residents included Matthew McClung, a partner in Cowan, McClung and Company, J. Patrick Roddy, Sr., founder of the Coca Cola Bottling Company, Captain William Rule, founder and editor of the Knoxville Journal and two-time Mayor of the city, George Helms, president of King Mantle Company, Weston Miller Fulton, inventor of the sylphon when led to today's thermostat, Richard DeArmand, State Representative, Charles H. Brown, Knox County Chancellor, and James Agee, author of A Death in the Family, for whom James Agee Street has been recently named.

Fort Sanders was part of the incorporated City of West Knoxville in 1888. This caused increased residential development, and its annexation into the City of Knoxville in 1897 insured additional interest. As was true in many neighborhoods across the country, the Great Depression of the 1930's was the beginning of dividing larger houses into apartments or using them as boarding houses. By the 1950's, the expansion of the University of Tennessee had physically claimed some of the original homes, and the growth of the student body had made those that remained a logical location for student housing. As owner occupancy declined, the maintenance of homes also declined. The 1970's saw a resurgence of interest in rehabilitating many of the houses, but with such a large neighborhood, not all were returned to single family use. Many historic houses continued to be divided into small apartments, and many were not rehabilitated and continued to deteriorate.