Prior to British colonisation, Taunggyi was a small Pa'O village of a few huts and the majority of Shan ethnic. The area lay on a wide shoulder of the Sittaung Hills of the Shan Hills and was populated by those ethnicities at the time. During British occupation, the town became the chief city and capital of the Southern Shan States. Taunggyi's modern development began in 1894, when the British moved their administrative offices from Maing Thauk (Fort Stedman) on the eastern shores of Inle Lake to the higher elevation of Taunggyi, for health and geographical reasons. Although geographically within the state of Yawnghwe, the town was denoted as a "notified area" by the British, exempt from the Sawbwa's administration.