The area which is now Gramercy Park was once in the middle of a swamp. In 1831 Samuel B. Ruggles, a developer and advocate of open space, proposed the idea for the park due to the northward growth of Manhattan. He bought the property, which was then a farm called "Gramercy Farm", from James Duane, a descendant of Peter Stuyvesant. To develop the property, Ruggles spent $180,000 to landscape it, draining the swamp and causing about a million horsecart loads of earth to be moved. He then laid out "Gramercy Square", deeding possession of the square to the owners of the 60 parcels of land he had plotted to surround it, and sought tax-exempt status for the park, which the Board of Alderman granted in 1832. It was the second private square created in the city, after Hudson Square, also known as St. John's Park, which was laid out by the parish of Trinity Church , Numbering of the lots began at #1 on the northwest corner, on Gramercy Park West, and continued counter-clockwise: south down Gramercy Park West, then west to east along Gramercy Park South (East 20th Street), north up Gramercy Park East, and finally east to west along Gramercy Park North (East 21st Street).
Gramercy Park was enclosed by a fence in 1833, but construction on the surrounding lots did not begin until the 1840s,] due to the Panic of 1837. Landscaping began in 1838 with the hiring of James Virtue, who planted privet inside the fence as a border; by 1839 pathways had been laid out and trees and shrub planted. Major planting also took place in 1844, followed by additional landscaping by Brinley & Holbrook in 1916. These plantings had the effect of softening the parks' prim formal design.
Ruggles also brought about the creation by the state legislature of Lexington Avenue and Irving Place, two new north-south roads laid out between Third and Fourth Avenues and feeding into his development at the top and bottom of the park.
In 1863, in an unprecedented gesture, Gramercy Park was opened to Union soldiers involved in putting down the violent Draft Riots which broke out in New York, after conscription was introduced for the Civil War. Gramercy Park itself had been protected with howitzers by troops from the Eighth Regiment Artillery, while the 152nd New York Volunteers encamped in nearby Stuyvesant Square.
At #34 and #36 Gramercy Park (East) are two of New York's first apartment buildings, designed in 1883 and 1905. Elsewhere in the neighborhood, nineteenth century brownstones and carriage houses abound, though the 1920s brought the onset of tenant apartments and skyscrapers to the area.
In the center of the park is a statue of one of the area's most famous residents, Edwin Booth, which was dedicated on November 13, 1918. Booth was one of the great Shakespearean actors of 19th Century America, as well as the brother of John Wilkes Booth, the assassin of Abraham Lincoln. The mansion at #16 Gramercy Park (South) was purchased by Booth and renovated by Stanford White at his request to be the home of the Players' Club, which Booth founded. He turned over the deed to the building on New Year's Eve 1888. Next door at #15 Gramercy Park (South) is the National Arts Club, established in 1884 in a Victorian Gothic mansion which was originally home to the New York Governor and 1876 Presidential Candidate, Samuel J. Tilden. Tilden had steel doors and an escape tunnel to East 19th Street to protect himself from the sometimes violent politics of the day.
In 1890 an attempt was made to run a cable car through the park to connect Irving Place to Lexington Avenue. The bill passed the New York State Legislature, but was vetoed by Governor David B. Hill. Thirteen years later, in 1912, another proposal would have connected Irving Place and Lexington Avenue, bisecting the park, but was defeated through the efforts of the Gramercy Park Association.
In the late 19th century, numerous charitable institutions influential in setting social policy were located on 23rd Street, and some, such as the Federation of Protestant Welfare Agencies, still remain in the area. Calvary Church on Gramercy Park North has a food pantry that opens its doors once a week for one hour, and the Brotherhood Synagogue on Gramercy Park South served as an Underground Railroad station before the Civil War, when the building was a Quaker meeting house, established in 1859.
In 1983, Fantasy Fountain, a 4.5 ton bronze sculpture by Greg Wyatt was installed in the park.
One of the most significant steam explosions in New York City occurred near Gramercy Park in 1989, killing two Consolidated Edison workers and one bystander, and causing damage of several million dollars to area buildings.