The Municipal Street Railway System was formed in 1919 when the City purchased the dilapidated rail lines of the Puget Sound Traction, Light and Power Company. The price of $15 million was the subject of controversy amid City Council members; Oliver Erickson, who opposed the purchase, estimated the true value of the lines at closer to five million. However, Seattle citizens supported purchase of the rail lines by an overwhelming margin, and the ordinance authorizing the purchase was passed in March of 1919. Allegations of bribery for City Council votes in favor of the purchase continued for several years; Mayor Hugh Caldwell, elected in 1920, initiated an investigation, but the suspicions were never proven.

The Municipal Street Railway System was bogged down by debt and other issues from its outset; for example, the first annual report (1919-1920) complains of too much interference from the City Council, presses for regulation of "jitneys," which were railways' major competitors for business, and demands that the City refuse to recognize the rights of railway employees to organize.

The System was administered by the Department of Public Utilities until 1932, when the Department was abolished; it then came under the authority of the Board of Public Works. With a $10 million loan from the Reconstruction Finance Corporation, the system was able to purchase buses and pay off the Puget Power debt, and was reorganized as the Seattle Transit system in 1939 (see record series 9380 and 9379).