Following the Treaty of Paris in 1783, territorial disputes over western lands created significant tensions among the former thirteen colonies, threatening the unity of the new confederation.

Virginia possessed the most extensive claims, asserting control over much of present-day Kentucky, West Virginia, Ohio, Indiana, Illinois, and parts of Wisconsin through its colonial charter's "sea to sea" provision. Massachusetts claimed a strip of land across present-day New York and the Great Lakes region. Connecticut maintained claims to the "Western Reserve" in northeastern Ohio. Georgia claimed territory extending to the Mississippi River, encompassing much of present-day Alabama and Mississippi.

States without western claims—particularly Maryland, Delaware, New Jersey, and Rhode Island—strongly opposed these expansive assertions. They argued that western lands should become common property of all states, not private domains of individual states. Maryland notably refused to ratify the Articles of Confederation until states with western claims agreed to cede these territories to the federal government.

Pressure from landless states and the need for national unity gradually forced territorial concessions. New York became the first to cede its claims in 1780. Virginia, despite its vast holdings, agreed to cede its northwestern territory (present-day Ohio, Indiana, Illinois, Michigan, Wisconsin, and parts of Minnesota) to Congress in 1784, retaining only Kentucky. Massachusetts, Connecticut, and other claimant states followed with their own cessions throughout the 1780s and 1790s.

These cessions created the first federal territories, forming the foundation for westward expansion. The Northwest Territory, established from Virginia's cession, became the model for territorial governance through the Northwest Ordinance of 1787. This resolution of competing claims prevented potential inter-state conflicts and established the precedent that western expansion would benefit the entire nation rather than individual states.