In the same year the Island Milling Company built saw and gristmills on an island in mid-stream at the falls. George Abernethy, a Methodist Mission settler of 1840, opened a Mission store and in competition with the Hudson's Bay Company bought wheat from the settlers and salmon from the Indians, and shipped these products to Honolulu to be traded for sugar, molasses and other needed commodities. A boat transported passengers from Clackamas Rapids, three miles below the Mission community, to the foot of the falls.
In 1842 a small overland migration of 137 persons under Dr. Elijah White arrived and began to build houses for winter shelter. The following year, Dr. McLoughlin, who from the first claimed the entire falls property but generously shared its advantages for settlement, hired Sidney Walter Moss to survey a townsite at the water's edge. He thereupon called the location Oregon City. It was the first townsite south of the Columbia River.
In 1843, following preliminary steps toward the formation of provisional government in the Pacific Northwest, Oregon City became the first seat of government. In 1844 the first legislature met there. In that year the town was replatted, the first brick house built—by Abernethy—and the first furniture factory opened. In 1846 the first issue of the Oregon Spectator was pulled from a hand-press operated by William G. T'Vault.
From the very beginning the town had a significant life. There all civil and military action affecting the well-being of the new country was taken. There the majority of settlers rested after the long westward journey and there they re outfitted for the final miles of travel to permanent homesites in the Willamette and adjacent valleys. A few remained, however, to build the town. "As settlers advanced," wrote Eva Emery Dye in a sketch of Oregon City published in Joseph H. Gaston's Portland, Its History and Builders, in 1911, "the Indians moved their camps to the first bench, the second, and finally to the third. ... sixty feet back under the rocks the Indians used to lie in wet weather and look down upon the building of the settlement."
The Cayuse War east of the Cascade Range, in the late
