Before the American occupation, the settlement was a mere hamlet of about 20 homes known as Kafagway. The health-conscious American Commissioners became enthusiastic advocates of a cool mountain retreat from the heat of Manila. Baguio is about 10 degrees cooler than the lowlands. Baguio became a town in 1900 and a chartered city in 1909. Its name derives from begyiw, an Igorot word for moss, once abundant on the site of Burnham lake.

Between 1909 and 1913, Baguio became in fact the summer capital of the country as the Philippine Commission annually transferred the colonial officialdom from Manila to Benguet during the dry season. By the 1920's, Baguio was widely acclaimed as one of the finest hill stations in tropical Asia and had begun to attract overseas tourists.

The original physical design for Baguio was prepared by Daniel H. Burnham and Pierce Anderson and was directly linked to the 'city beautiful' movement in the USA for its senior author had presided over the genesis of this planning philosophy in Chicago during the World's Columbian Exposition of 1893. Further, Burnham had applied the resulting 'white city' paradigm, the main elements of which were a single and comprehensive urban plan and a grid system of streets overlain by radial boulevards, linear parks, and malls, in redesigning several major American cities like Chicago, Cleveland, San Francisco and Washington DC.

Though conceived, designed and initially developed as a highland enclave for Westerners, Baguio has evolved with the passing decades into a major regional capital in the Philippines and a flourishing hill station increasingly adapted to the service of Filipinos.