Founded in 1639, Ulan Bator, then Örgöö (Urga), was originally located at the lake Shireet Tsagaan nuur, around 400 km from the present Ulan Bator in Övörkhangai Province, and was mainly intended to be the seat of the first Jebtsundamba, Zanabazar.

It was moved often to various places along the Selenge, Orkhon and Tuul rivers until reaching its present location in the late 18th century, on the high road from Beijing to Kyakhta, about 700 miles northwest of Beijing and 165 miles south of the trading town of Kyakhta on the Russian frontier. It was the holy city of the Mongols and the residence of the "Living Buddha," metropolitan of the Khalkha tribes, who ranked third in degree of veneration among the dignitaries of the lamaist clergy. This "resplendently divine lama" resided in a palace on the southern side of the town. The town prospered in the 1860s as a commercial center on the tea route between Russia and China (early 20th century trade was valued at over 1,000,000 dollar a year) and was the seat of the Qing Amban (highest imperial official) in Mongolia, who controlled all temporal matters, and was specially charged with the control of the frontier trade town of Kyakhta and its trade with Russia.

In 1904, on the occasion of the British expedition to Tibet, the Dalai Lama withdrew from his Tibetan capital Lhasa and went to Ikh Khüree (as it was named at the time), where he remained until 1908. During his residence there the Dalai Lama would have no communication with the incumbent Bogd Khan who was described as a drunken profligate.

The foundations of the city were built by the Chinese but it is the Russians which really gave it its distinct architecture of low level buildings (usually three to five floors) this was then followed by a horrendous wave of cheap prefabricated buildings.