Captain Cook's account of his discovery aroused much interest in England but Britain did not try to colonise Australia until its American colonies achieved independence.
The First Fleet, commissioned by Thomas Townsend, Viscount Sydney, set sail for Botany Bay on May 13, 1787, led by Captain Arthur Phillip.
The fleet comprised of the frigate HMS Sirius, three store ships, the armed tender Supply, the Golden Grove, Borrowdale and six transports, the Scarborough, Lady Penrhyn, Friendship, Charlotte, the Prince of Wales and the Alexander.
The fleet first assembled at Mother Bank, the Isle of Wright, later arriving at Cape Town, South Africa to take aboard plants, fruit trees and animals.
The HMS Supply, along with the ships Scarborough, Friendship and Alexander sailed ahead of the fleet, first sighting the NSW coast on the 3rd of January, 1788.
They arrived at Botany Bay on the 18th of January, where upon anchoring, it was discovered there was no fresh water locally available.
When the rest of the fleet arrived on the 20th, it was decided to go further north, to Port Jackson (now also known as Sydney Harbour).
There they were to find a lush, pristine forest in a cove fed by a stream (now called the Tank Stream), where it was decided they would settle.
When all the ships were anchored in Port Jackson, a formal flag raising ceremony was held by Arthur Phillip on the shore to proclaim the Colony of New South Wales, in the name of the King of England on the 26th of January, 1788.
Sydney began its life as a penal colony, with a total of 568 male and 191 female convicts with 13 children, 206 marines with 26 wives and 13 children, and 20 officials having made the voyage.
In fact free settlers did not begin arriving until 1793. It was named Sydney after Britain's home secretary, Lord Sydney, (1733-1800), who was responsible for the colony.
Phillip's domain covered half of Australia (from the eastern oceanic waters to as far west as the 135th meridian), but his human resources were limited.
Three major problems confronted the early governors: providing a sufficient supply of foodstuffs, developing an internal economic system and producing exports to pay for the colony's imports from Britain.
It was a rough life and for 30 years the colony struggled, with the soldiers of the NSW Corps toiling with the convicts to ensure survival. As late as 1820, a convict's weekly ration consisted of 7 lb.. of flour, 7 lb.. of meat, 1 lb. of sugar, 8 oz of tea and 3 and 1/2 lb.. of maize.
The first execution in Australia was a 17 year old youth named John Barrett, for stealing food, on the 6th of March, 1788.
Land around Sydney was too sandy for suitable farming, and the colony faced perpetual food shortages through the 1790s. Food sources were mainly fish and kangaroo.
Phillip established farms on the more fertile banks of the Hawkesbury River, a few miles northwest of Sydney, but this land was often flooded or still used by the Aborigines.
Food supplies came mainly from Norfolk Island, nearly 1,600 km (1,000 miles) away, which Phillip had occupied in February 1788, The island later served as a jail.
In 1792 the Royal Marines were replaced with the New South Wales Corps, which had been specifically recruited in England.
The soldiers of the NSW corps, whose officers had the monopoly on this endless supply of rum, dominated the early governors of the colony.
Originally formed to protect the fledgling colony from perceived threats of other European powers, they also served as police.
Given grants of land, members of the corps became the colony's best and largest farmers but they also posed a serious threat to the governors through their power over the economy.
With a sharp eye for enhancing their income, they specialise in controlling the price of rum which served largely as the colony's internal means of exchange.
Phillip's successor was governor, Capt. John Hunter (1738-1821), who arrived in 1795 and tried in vain to gain control of the rum traffic.
The next governor, Capt. Philip G. King (1758-1808), who served from 1800 to 1806, was no more successful than Hunter.
The settlement of Hobart in Van Diemen's Land (now Tasmania) was established in 1803 to accommodate convicts and to quash any possible French claims to the island.
There was a shortage of coinage in NSW, and rum, an easily produced spirit from sugar cane, began to be used as currency.
Needless to say, this was to slow Sydney's development considerably, as it is all too easy to for soldiers and convicts to drink compared to trading it for food, clothes and supplies.
The colony, not making money, could not pay its bills nor buy the many things it needed from elsewhere.
In 1806 Capt. William Bligh replaced King. Bligh had gained notoriety earlier, when the crew of his ship, the Bounty , had mutinied in the Pacific.
When Governor William Bligh - recently returned from his mutiny on the Bounty - tried to stop this corruption of the NSW Corps, he was imprisoned in the infamous Rum Rebellion.
The Rum Corps were to find out like the Bounty's crew, he was not a man to be trifled with. Forced once again to sail to Indonesia as he had after the mutiny on the Bounty, he thereby ensured the British authorities in England would be fully informed of the situation.
Bligh threatened the corps with the loss of their monopoly. He was met with the so-called Rum Rebellion, and on Jan. 26, 1808, Lieutenant Colonel George Johnston arrested him.
Bligh was later sent to London, where he successfully defended his policies, but he was not restored to his governorship. The Rum Rebellion thus gave the leaders of the corps immediate victory.
Meanwhile, one of its ringleaders, John Macarthur (1767-1834), had found the solution to the colony's lack of valuable exports; in 1802 he had shown British manufacturers samples of Australian wool. It was only after 1810, however, with the breeding of the merino sheep, with its long staple wool, that sheep grazing gradually developed into a major economic activity.
Bligh's replacement, Lachlan Macquarie (1762-1824), served as governor from 1809 to 1821. The New South Wales Corps was sent home, and because the economy had improved, the government gained stability.
With the arrival of Governor Lachlan Macquarie in 1810 (along with the 87th Regiment) the NSW Rum Corps were sent packing back to England.
The colony, with the population of Sydney being about 10,000 changed dramatically and much of what you see in Sydney today is a result of Macquarie's leadership and vision.
The coins that the original settlers did have, were the George III twopence, called the Cartwheel penny because of its size. In 1812, in order to relieve the problems caused by the lack of coins, Governor Macquarie bought Spanish dollars from India.
He then had holes cut in them to discourage exportation.
These well known Australian coins were called the Holey Dollar for the larger part of the coin while the piece cut from the middle was called the Dump.
Declared legal tender Sept. 30th, 1813, the Dump was worth about 15 pence, while the Holey Dollar was valued at 5 shillings sterling.
With the crossing of the Blue Mountains in 1813 and the subsequent discovery of the prosperous hinterland, the way was finally clear for the growth and development of modern Sydney.
Transportation of convicts to New South Wales (NSW) was finally abolished in 1840 and shortly afterwards, in 1842, Sydney was declared a city.
The population grew rapidly during this period, helped by the discovery of gold and the gold rush of 1850 - one year after the Californian gold rush of 1849. Australia received many American and Chinese immigrants at the same time.
Macquarie began an extensive public works program, employing the ex-convict Francis Greenway (1777-1837) to design churches, hospitals, and government buildings in Sydney.
The population of the colony also increased after Britain's defeat of Napoleon in 1814 with the arrival of more free settlers bringing increased claims to farmland on which more convicts could serve as labourers. These two groups of colonists, however, reflected a growing tension within New South Wales.
As convicts completed their sentences or were eligible for release due to good behaviour, they sought land and opportunities. They were known as the emancipists, and their leaders urged that they be given more rights.
The free settlers, like the corps before them, maintained that convicts, even after their release, should not be treated as equals. These opponents to the emancipists were known as the exclusives.
Macquarie, as had Bligh, tended to support the emancipists, granting them land and appointing them to minor offices. The exclusives became critical of both Macquarie and the emancipists.
Macquarie's government was expensive, and most of the burden had to be carried by the British treasury.
Overseas punishment, however, did not appear to have reduced the number of convicts, and many wondered if New South Wales was the proper solution to Britain's crime problems.
In 1819, the British Colonial Office sent Judge John Thomas Bigge (1780-1843) to inspect and report on Macquarie's administration.
He recognised the colony's growing importance to the British Empire as a home for wealthy free settlers, and he popularised the name Australia for the southern continent. Bigge's reports resulted in a major change in the constitution for New South Wales in 1823.
New South Wales was granted the first constitutional charter by a British law, authorising the creation of a Legislative Council with limited power. In 1825, by an executive order of the British government, the island settlement of Van Diemen's Land (present-day Tasmania) became a separate colony.
In 1901 the six British colonies in Australia formed a federation to become the Commonwealth of Australia.