Dakota Territory is organized on March 2, 1861, from the northern part of Indian Territory and Minnesota Territory.

The name refers to the Dakota branch of the Sioux tribes that occupy the area at this time.

The Dakota Territory consists of the northernmost part of the land acquired in the Louisiana purchase in 1803, as well as the southernmost part of Rupert's Land, which had been acquired in 1818 when the boundary was changed to the 49th parallel.
 
When Minnesota became a state in 1858, the leftover area between the Missouri River and Minnesota's western boundary fell unorganized.

Three years later President-elect Abraham Lincoln's cousin-in-law, J.B.S. Todd, personally lobbied for territory status and the U.S. Congress formally creates Dakota Territory.

Poor hunting grounds remain for the Dakota after their cession of lands east of the Red and Big Sioux Rivers in Minnesota and Iowa; they have become increasingly hostile to white settlers and traders, many of whom encroach on Indian territory and are unscrupulous in their dealings.

When 1862 arrives shortly after a failed crop the year before and a winter starvation, the federal payment is late.

The local traders will not issue any more credit to the Santee and the lead trader trader, Andrew Myrick, goes so far as to tell them that they are 'free to eat grass or their own dung'.

As a result, the Dakota War of 1862 begins when a few Santee men murder a white farmer and most of his family on August 17, 1862, igniting further attacks on white settlements along the Minnesota River.

The Santee now attack the trading post, and Myrick is later found among the dead with his mouth stuffed full of grass.

Some Dakota refugees and warriors had made their way to Lakota lands following their expulsion from Minnesota.

Battles continue between the forces of the Department of the Northwest and combined Lakota and Dakota forces.

Colonel Henry H. Sibley with two thousand men had pursued the Sioux into Dakota Territory.

Sibley's army defeats the Lakota and Dakota in the Battle of Big Mound on July 24, 1863; the Battle of Dead Buffalo Lake on July 26, 1863; and the Battle of Stony Lake on July 28, 1863.

Sibley’s force defeats the combined Lakota and Dakota at the Battle of Whitestone Hill on September 3, 1863.

The Montana Territory had been organized out of the existing Idaho Territory by Act of Congress and signed into law by President Abraham Lincoln on May 26, 1864.

The areas east of the Continental Divide had been previously part of the Nebraska Territory and Dakota Territory and had been acquired by the United States in the Louisiana Purchase.

The territory also includes a portion of the Idaho Territory west of the continental divide and east of the Bitterroot Range, which had been acquired by the United States in the Oregon Treaty, and originally included in the Oregon Territory.

The part of the Oregon Territory that becomes part of Montana had been split off as part of the Washington Territory.

The Territory of Montana, an organized incorporated territory of the United States, comes into existence on May 28, 1864.

The boundary between the Washington Territory and Dakota Territory had been the Continental Divide; however, the boundary between the Idaho Territory and the Montana Territory follows the Bitterroot Range north of 46°30'N (as shown on the 1864 map).

Popular legend says a drunken survey party followed the wrong mountain ridge and mistakenly moved the boundary west into the Bitterroot Range., but, contrary to legend, the boundary is precisely where the United States Congress intended.

With the formation of the Montana Territory from the existing Idaho Territory in 1864, the southeastern section of the Idaho Territory (most of modern Wyoming) becomes briefly part of Dakota Territory once again, although a strip of land along the western border of what will become Wyoming remains part of the Idaho Territory.

Brigadier Alfred Sully, after leaving men at Fort Rice and to guard the emigrants bound for the goldfields, has twenty-two hundred men for the attack on the Sioux.

He also has two artillery batteries with eight howitzers.

On July 26, Sully’s native scouts skirmish with thirty Sioux warriors near present day Richardton, North Dakota and one scout is wounded.

With the Sioux now aware of his presence, Sully advances rapidly but carefully.

Scout Frank LaFramboise, a mixed blood Santee, informs Sully of the location of the large Sioux encampment ten miles ahead on the morning of July 28.

Sully’s scouts report fifteen hundred to eighteen hundred tipis in the Sioux encampment.

Sully believes he will be faced by five thousand to six thousand warriors.

The Sioux will later claim they had sixteen hundred warriors in the battle—likely closer to the truth, with a calculation of one to two adult males per tipi.

The Sioux in the encampment consist mostly of Lakota (Teton) from the Hunkpapa, Sihasapa, Miniconjou, and Sans Arc bands plus Yanktonais, and a few Santees.

The Sioux are mostly armed only with bows and arrows and a few short-range muskets and shotguns.

Many of the Sioux, especially the Tetons, had not been hostile to the U.S. before this encounter.

Sully’s crushing defeat of the large Sioux force at Killdeer Mountain breaks the back of Sioux resistance; his force then sweeps westward to the Yellowstone River, killing those of the Sioux who decide to stand and fight, before returning to the newly established Fort Rice near present-day Bismark, North Dakota.

Red Cloud's War ends in a victory for the Arapaho, Cheyenne, Lakota, and Dakota.

Peace commissioners had been sent to Fort Laramie in the spring of 1868, but only after the army had evacuated the forts in the Powder River country and the natives had burned down all three of them, does Red Cloud travel to Fort Laramie in November 1868, where the Treaty of Fort Laramie (1868) is signed.

Northern Arapaho representatives also sign the treaty.

It establishes the Great Sioux Reservation, which includes all South Dakota territory west of the Missouri river.

It also declares the Powder River country as "unceded Indian territory", as a reserve for the natives who choose not to live on the new reservation, and as a hunting reserve for the Lakota, Cheyenne, and Arapaho.

The treaty also accords the natives continued hunting rights in western Kansas and eastern Colorado.

Most importantly, the treaty specifies what Red Cloud sought: "no white person or persons shall be permitted to settle upon or occupy any portion" of the Powder River country "or without the consent of the Indians first had and obtained, to pass through" the Powder River country.

Fort Laramie Treaty--1868" http://www.pbs.org/weta/thewest/resources/archives/four/ftlaram.htm, accessed 28 Oct. 2012)

The U.S. government had increasingly sought a peaceful rather than a military solution to Red Cloud's War despite the military successes in the Hayfield and Wagon Box Fights.

The successful completion of the transcontinental railroad takes priority, and the Army does not have the resources to defend both the railroad and the Bozeman Trail from native attacks.

The military presence in the Powder River Country is both expensive and unproductive, with estimates that twenty thousand soldiers might be needed to subdue the natives.

The U.S. government had come to the conclusion after the Fetterman Fight that the forts along the Bozeman Trail are expensive to maintain (both in terms of supplies and manpower) and do not bring the intended security for travelers along the Road.

However, Red Cloud had refused to attend any meeting with treaty commissions during 1867.

The Northern Pacific puts down one hundred and sixty-four miles (two hundred and sixty-four square kilometers) of main line across North Dakota in 1872, with an additional forty-five miles (seventy-two kilometers) in Washington.

On November 1, General George Washington Cass become the third president of the company.

Cass had been a vice-president and director of the Pennsylvania Railroad, and will lead the Northern Pacific through some of its most difficult times.

Attacks on survey parties and construction crews building in Native American homelands in the region of present North Dakota have become so prevalent that the company has appealed for Army protection from President Grant.

In 1872 also, the Northern Pacific has opens colonization offices in Europe, seeking to attract settlers to the sparsely populated and undeveloped region it served.

Survey parties accompanied by federal troops, railroad construction, permanent settlement and development, along with the discovery of gold in nearby South Dakota, will all serve as a backdrop leading up to the Battle of the Little Bighorn and the defeat of General George Armstrong Custer in 1876.