Shortly after the Constitutional Convention had adopted a constitutional provision that required the consent of affected state legislatures if Congress tried to create a state out of the territory of any existing ones (Article IV, Section 3, Clause 1), the Framers faced a potentially divisive problem that arose from that provision. The Framers feared that states might weaken federal power by preventing Congress from making "needful Rules and Regulations" for admission to the union of the western territory ceded to the United States during and after the American Revolution. The western land claims of many states were still unresolved, and the Convention had adopted a provision that required the consent of state legislatures in order to create new states out of existing states; for these reasons, the Framers feared that some states might argue that any territory for which Congress would try to make "needful Rules and Regulations" was in fact their territory and so could not be prepared for admission to the union by the United States.

To prevent such a misconstruction and protect the legitimate claims of the new federal government, Daniel Carroll of Maryland proposed at the Convention that "nothing in this Constitution shall be construed to affect the claim of the U.S. to vacant lands ceded to them by the Treaty of peace." While holding that states were not sovereign nations and thus could not in principle claim land ceded by one nation (Britain) to another, James Madison recognized (as Justice Joseph Story later wrote in his Commentaries on the Constitution of the United States) that the question of "to whom of right belonged the vacant territory appertaining to the crown at the time of the revolution, whether to the states, within whose charter territory it was situated, or to the Union in its federative capacity" was "a subject of long and ardent controversy, and...threatened to disturb the peace, if not to overthrow the government of the Union." To avert a potential crisis, Madison successfully proposed that the Convention should be "neutral and fair" and "ought to go farther and declare that the claims of particular States also should not be affected."

Since its adoption in the Constitution, this clause has spawned very little constitutional controversy and has functioned largely as its author hoped: by giving the same protection to both state and federal land claims, it diffused potential conflict over whose claims in the western territories would have constitutional preeminence. Potential conflicts were put over for decision by the political branches, which successfully handled the disposition of the western territories.