The territory was originally the Liberty of Durham under the control of the Bishop of Durham. The liberty was also known variously as the "Liberty of St Cuthbert's Land", "The lands of St. Cuthbert between Tyne and Tees" or "The Liberty of Haliwerfolc".
The bishops' special jurisdiction was based on claims that King Ecgfrith of Northumbria had granted a substantial territory to St Cuthbert on his election to the see of Lindisfarne in 684. In about 883, a cathedral housing the saint's remains was established at Chester-le-Street and Guthfrith, King of York granted the community of St Cuthbert the area between the Tyne and the Wear. In 995 the see was moved again to Durham.
Following the Norman invasion, the administrative machinery of government was only slowly extended to northern England. In the twelfth century a shire or county of Northumberland was formed, and Durham was considered to be within its bounds. However the authority of the sheriff of Northumberland and his officials was disputed by the bishops. The crown still regarded Durham as falling within Northumberland until the late thirteenth century. Matters came to a head in 1293 when the bishop and his steward failed to attend proceedings of quo warranto held by the justices of Northumberland. The bishop's case was heard in Parliament, where he stated that Durham lay outside the bounds of any English shire and that "from time immemorial it had been widely known that the sheriff of Northumberland was not sheriff of Durham nor entered within that liberty as sheriff... nor made there proclamations or attachments". The arguments appear to have been accepted, as by the fourteenth century Durham was accepted as a liberty which received royal mandates direct. In effect it was a private shire, with the bishop appointing his own sheriff. The area eventually became known as the "County Palatine of Durham".
The Palatinate of Durham enjoyed the "highest liberty in private hands" during the Middle Ages. In England, "liberty" usually meant a territorial area that was, in some sense, free from royal jurisdiction. Most of these territorial liberties extended as far back as the Anglo-Saxon period. As a palatinate under ecclesiastical jurisdiction the Bishop of Durham enjoyed exemption from taxation and the right to pardon life and limb. Both Bracton and Blackstone considered the "right to pardon life and limb" the "essential mark" of a palatinate.
The term palatinus is applied to the bishop in 1293, and from the 13th century onwards the bishops frequently claimed the same rights in their lands as the king enjoyed in his kingdom.