In 1873, an educational convention of the Methodist Episcopal Church attended by delegates from six of the regional conferences from the area defined by the church as the "Central South" met in Knoxville, Tennessee and unanimously adopted resolutions in favor of "One Central University for the Methodist Episcopal Church in the South." After more than a decade of politics, debates, and financial maneuvering, a charter for Chattanooga University was granted in July 1886, authorizing the institution to confer degrees. The charter stipulated that the school be governed by two classes of trustees, one elected by the Freedmen's Aid Society, and the other elected by the six conferences of the Methodist Episcopal Church. Shortly thereafter, the Board of Trustees selected Edward S. Lewis as the first president and dean of the university, and Bishop J.M. Walden as president of the board.

Chattanooga University began its first semester on September 15, 1886 with 118 students and eight faculty members in September 1886, with classes taking place inside of "Old Main", a four-story building on the center of the thirteen acre campus, the site of present day Race and Hooper Halls. Regional denominational politics of the Methodist Episcopal Church, including a controversy over policy with regard to racially integrated education, continued to impact the success of the fledgling Chattanooga University, and in 1889 it merged with Grant Memorial University (formerly known as East Tennessee Wesleyan University) in Athens, Tennessee. As part of the merger, John F. Spence, head of the Athens branch, was named President of the university. The newly consolidated institution changed names again later that year to U.S. Grant University.