On July 13, 1787, Congress of the Confederation of the United States enacted the Northwest Ordinance (formally called "An Ordinance for the Government of the Territory of the United States, North-West of the River Ohio"). The ordinance created the Northwest Territory as the first organized territory of the United States out of the region south of the Great Lakes, north and west of the Ohio River, and east of the Mississippi River.

In 1784, Thomas Jefferson proposed that the states should relinquish their claims to all the territory west of the Appalachians, and the area should be divided into new states of the Union. Jefferson proposed creating seventeen roughly rectangular states from the territory. The proposal was adopted in a modified form as the Northwest Ordinance of 1784. However, the Ordinance did not define how the land would become states, or how the territories would be governed or settled before they became states. This oversight led to the enactment of the Northwest Ordinance of 1787 on July 13, 1787.

The Northwest Ordinance is considered one of the most important pieces of legislature passed by the Continental Congress. The Northwest Ordinance established the precedent by which the United States would expand across North America by the admission of new states, rather than by the expansion of existing states. Also, the banning of slavery in the Northwest Territory had the effect of establishing the Ohio River as the boundary between free and slave territory.