The residential and commercial area that is now the Old Quarter came to be during the Lý and Trần dynasties and was then located east of the Imperial Citadel of Thăng Long and along the Red River. During the Lê dynasty, scholar Nguyễn Trãi already mentioned some of the areas each specialized in one particular trade. It was then surrounded by a defensive wall with several gates.

During the Lê dynasty, the area included several lakes and wetlands, the largest of which was Thái Cực lake. These lakes, as well as the Tô Lịch River were connected with Hoàn Kiếm lake and the Red River. Near the end of the 19th century these lakes and rivers became isolated from each other.

During the Lý and Trần dynasties, many people from the surrounding plains migrated to the city and settled in what is now the Old Quarter, creating the densest urban area of the city. The Lê dynasty period saw an additional influx of Chinese immigrants who arrived to trade, creating several Chinese neighbourhoods..

When the French ruled over Vietnam, they partially rebuilt the area. This period saw many French and Indians settling there to conduct business. Two small markets were demolished to make place for Đồng Xuân Market. Furthermore, a tramway was constructed through the quarter.

The area is still the commercial heart of Hanoi.