The first meeting between the two teams occurred on 12 November 1881, when St. Mark's (West Gorton) – who would later become Manchester City – hosted Newton Heath LYR – who would later become Manchester United. The game finished 3–0 in favour of Newton Heath and was described by the Ashton Reporter as "a pleasant game". At this time, the clubs were just two of many fledgling sides in the Manchester area, and the fixture had no special significance. Both clubs grew in stature as the 1880s progressed, leading to their first meeting of the 1890s being billed as "a meeting of two local clubs, just rising to the highest standard in the football world whilst are nearly in the front rank". The pair became the dominant teams in the Manchester area; the winner of the Manchester Cup was either Newton Heath or Ardwick every year between 1888 and 1893. Both teams joined the Football Alliance, a short-lived rival to the Football League. During this period both clubs made unsuccessful attempts to gain election to the League (Newton Heath in 1889, 1890 and 1891; Ardwick in 1891). Admission to the Football League finally came in 1892. Newton Heath joined the First Division, and Ardwick the new Second Division.
The first Football League meeting between the teams came in the 1894–95 season, Newton Heath beating Manchester City 5–2 at Hyde Road. The first meeting between the clubs to take place at the highest level of English football occurred in December 1906, a 3–0 City win in a First Division match for which the gate receipts exceeded £1,000, a very large figure for the era. At this time City were suffering the after-effects of a financial scandal in which the club were found guilty of making off-balance sheet payments to players. As a result, seventeen players were suspended and banned from ever representing the club again, including the core of the team which had won the 1904 FA Cup. When the suspensions ended in January 1907, four players (Jimmy Bannister, Herbert Burgess, Billy Meredith and Sandy Turnbull) joined United, where they helped United gain their first league title in 1908. In contrast to modern antipathy, the transfers were generally welcomed for helping a fellow Manchester club. The following season Turnbull became the first player to be sent off in a derby.
Before the Second World War, many football supporters in Manchester watched City one week and United the next. After the war, a stronger rivalry developed and following both teams became uncommon.
The first floodlit Manchester derby was played on 26 February 1889 at the Belle Vue Athletic Ground. Wells electric lights were placed around the ground and a crowd of 10,000 watched Newton Heath defeat Ardwick 3–2. The match was played in aid of the Hyde Coal Mine disaster.
The first competitive floodlit derby was the 1956 FA Charity Shield match, as Manchester United were defending league champions and Manchester City were FA Cup holders. The game was a break with tradition as Charity Shield games were typically played at the home ground of the League Champions, but as Old Trafford had yet to install lights, the game was played at Maine Road.