In days of old, mental illness was seen as a family problem, something to be ashamed of and best hidden away. “Lunatics” were often sent to isolated communities, put in monastic hospitals, or boarded out to be looked after privately. If a person was considered really disturbed or violent, the parish authorities might put them in a “house of correction” or workhouse. From the late 17th century, there was an increase in privately run and charitable “lunatic asylums”.

In the 18th century, there was growing concern in the Manchester area about the abuses of private “madhouses”. In 1752, the original Manchester Royal Infirmary was built on the site of present-day Piccadilly Gardens. It treated people suffering from mental illness, but only as out-patients. Therefore in 1766, one of the first lunatic asylums in Britain, the “Manchester Lunatic Hospital” was built adjoining it.

The Lunatic Hospital was originally part of the Manchester Infirmary. It was governed by a board of trustees appointed by the MRI trustees, but the hospital was financially independent. The law at the time didn’t require the family to get a medical certificate for committing someone to the hospital, but at Piccadilly, they only admitted patients with an order signed by a physician and four of the trustees. Also, unlike other voluntary hospitals, the hospital required payment for patients. This helped the hospital to be financially independent and avoided some of the difficulties which charitable hospital had in raising funds. Patients were paid for either by their family or by poor law authorities.

It is described as originally having 24 “cells” for patients, but appears to have been founded in a genuine spirit of humanity, probably aiming to avoid the terrible treatment found at many other private institutions at the time. Perhaps because patients were being paid for, there was a tradition of patients' rights and physicians and apothecaries regularly attended and kept medical records. In 1773, the trustees passed a resolution stating that there would be “No stripes or beatings. No painful coercion whatsoever, more than what is necessary to restrain them from hurting themselves or others”.

The hospital expanded rapidly. By 1787, it had more patients than the main infirmary next door and by 1800 it had over 100 beds. Nearly 50 years later the trustees were still praising the original founders of the hospital for their “…mild, merciful and enlightened measures…”, adding that, "Kindness and tenderness soothe and heal the bruised mind and affrighted imagination."

By the mid-19th century, Victorian Manchester was growing quickly. The Piccadilly site, which had once been on the edge of the town, was now becoming built up and noisy, making it unsuitable for the care of patients with mental illness. So in 1845, the trustees bought a site in Cheadle [Ed: In Heald Green] and the hospital moved there four years later (it was officially named “The Manchester Royal Hospital for the Insane*”).

After the Lunatic Hospital moved to Heald Green, the building at Piccadilly was demolished and the infirmary was re-modelled and enlarged. The Manchester Royal Infirmary relocated to its current site on Oxford Road in 1908. The hospital buildings in Piccadilly were then completely demolished by April 1910 apart from the outpatients department, which continued to deal with minor injuries and dispense medication on this site until the 1930s.