On January 14, 1839, when the city of Houston was the capitol of the Republic of Texas, an Act of the Texas Congress directed Sam Houston's successor, President Mirabeau B. Lamar, to select the site for a new capitol at a point between the Trinidad and Colorado Rivers, above the San Antonio Road. Lamar's Capitol Commission chose, as the site, Waterloo, situated on the east bank of the Colorado in Bastrop County.

Judge Edwin Waller, a veteran of the War for Texan Independence, was appointed as agent for the Republic. His charge was to lay out the capital city, which was to be named in honor of Stephen F. Austin, set aside the most valuable lots for the capital and governmental buildings, and sell not more than half of the remaining lots at public auction.

Judge Waller and a surveyor named William H. Sandusky went to Austin in May 1839 with about 200 construction workers. Two camps were established, one on Waller Creek and the other at George Durham's spring. After Sandusky staked off a square mile (640 acres) on the bluff of gradually rising land overlooking the river, streets were established and lots were laid out. Suitable lots were set aside for a hospital, churches, schools and a university, the president's house, a capitol, government buildings, business areas and home sites.

In the shade of these live oaks, located near Durham's Spring, Sheriff Charles King of Bastrop, acting as auctioneer, sold 301 city lots for a total of $182,585, almost enough to pay for the government buildings constructed.

The Auction Oaks are located in Republic Square near the intersection of W. 4th and San Antonio Streets in downtown Austin.