The Liberal Party was officially formed on 6 June 1859, although the term ‘Liberals’ had been increasingly in use since the 1832 Reform Act. Its formal establishment marked a shift of support for the party from aristocrats to include also progressive industrialists, backed by supporters of the utilitarian reformer Jeremy Bentham, Nonconformists (especially in Welsh and Scottish constituencies), and the middle classes. During the Liberals' first period of power, from 1830 to 1841, they promoted parliamentary and municipal government reform and the abolition of slavery, but their laissez-faire theories led to the harsh Poor Law of 1834. Except for two short periods, the Liberals were in power from 1846 to 1866, but the only major change was the general adoption of free trade. Liberal pressure forced Prime Minister Robert Peel to repeal the Corn Laws of 1846, thereby splitting the ruling Conservative (or Tory) party.

Extended franchise (1867) and Gladstone's emergence as leader began a new phase, dominated by the Manchester school with a programme of ‘peace, retrenchment, and reform’. Gladstone's 1868-74 government introduced many important reforms, including elementary education and vote by ballot. The party's left, composed mainly of working-class Radicals and led by Charles Bradlaugh (a lawyer's clerk) and Joseph Chamberlain (a wealthy manufacturer), repudiated laissez faire and inclined towards republicanism, but in 1886 the Liberals were split over the policy of home rule for Ireland, and many became Liberal Unionists or joined the Conservatives.

Except for the period 1892 to 1895, the Liberals remained out of power until 1906, when, reinforced by Labour and Irish support, they returned with a huge majority. Old-age pensions, National Insurance, limitation of the powers of the Lords, and the Irish Home Rule Bill followed. Lloyd George's alliance with the Conservatives from 1916 to 1922 divided the Liberal Party between him and his predecessor Asquith, and although reunited in 1923 the Liberals continued to lose votes. They briefly joined the National Government (1931-32). After World War II they were reduced to a handful of members of Parliament. However, Liberal thinkers, notably John Maynard Keynes and William Beveridge, had a profound influence on post-war governments in terms of creation of a welfare state and ideas about government intervention to help manage the economy.

A Liberal revival began under the leadership (1956-67) of Jo Grimond and continued under Jeremy Thorpe, who resigned after a period of controversy within the party in 1976. After a caretaker return by Grimond, David Steel became the first party leader in British politics to be elected by party members who were not MPs. Between 1977 and 1978 Steel entered into an agreement to support Labour in any vote of confidence in return for consultation on measures undertaken. After the 1987 general election, Steel suggested a merger of the Liberal Party and the SDP, and the SLD was formed on 3 March 1988, with Paddy Ashdown elected leader in July of that year. From 1989 the SLD became known as the Liberal Democrats.

Unlike the Council for Social Democracy, which was wound up in 1990, a rump Liberal Party remained after the 1988 Liberal-SDP merger. In 2001 it had 30 local councillors. It contested 14 parliamentary constituencies at the June 2001 general election but won less than 1% of the vote, except in Liverpool West Derby, where, with 15% of the vote, its candidate finished in second position, ahead of the Liberal Democrats.

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Gladstone, William Ewart