By the mid-1780's, a movement had developed in Kentucky to separate from Virginia. Ten political conventions were held during 1784–92 to plan for independence. The last convention framed a constitution, and on June 1, 1792, the Commonwealth of Kentucky entered the Union as the 15th state, the first west of the Appalachians. Colonel Isaac Shelby was the first governor. Lexington briefly served as the state capital until Frankfort was chosen in December, 1792.

Kentucky, with rich agricultural lands and a growing trade, prospered over the next several decades. Its development was helped by the end of the Indian threat, the opening of navigation on the Mississippi, and the coming of railways. The Indian tribes of the Old Northwest were decisively defeated by General Anthony Wayne's forces, which included some 1,600 Kentucky volunteers, at the Battle of Fallen Timbers in Ohio in 1794. Navigational rights on the Mississippi were granted by Spain to the United States in 1795. In 1832 the Kentucky and Ohio Railroad began operation, between Lexington and Louisville; the Louisville and Nashville Railroad, over which freight was shipped to the South, opened in 1859.

Kentucky played an important role in national affairs in the early decades after statehood. Politically, Kentuckians were predominantly Jeffersonian Republicans, supporters of states' rights and of agrarian interests over those of commerce and industry. Kentucky's legislature joined Virginia's in denouncing the Alien and Sedition Acts of 1798 and adopting resolutions that asserted the right of states to declare acts of Congress unconstitutional.

There was widespread sentiment in the state for national expansion. Kentuckians supported the Louisiana Purchase of 1803 and the War of 1812, which was considered an opportunity to invade Canada and to force Indian allies of the British out of United States territory. Henry Clay of Kentucky, speaker of the U.S. House of Representatives, was among the national leaders who brought strong pressure for the United States to enter into war against Great Britain. Kentucky volunteers and militia fought in several engagements of the war.

The period from 1820 to 1860 has often been referred to as Kentucky's golden age, because it was a time of general peace and prosperity. Agriculture became more highly developed, with hemp, flax, and tobacco being the major cash crops. Manufacturing and other industry grew, particularly the production of coal, iron, salt, and bourbon whiskey (named for Bourbon County). The state funded a variety of projects to facilitate trade: roads were improved, river channels deepened and canals constructed. The Bluegrass region around Lexington became important in the breeding of thoroughbred racehorses. Population doubled, reaching more than a million persons in 1860, and Louisville replaced Lexington as the commercial, industrial, and financial center of the state.