There was little in the early history of León to suggest its future prominence as a leading industrial centre. For most of the colonial period, it remained a small market town overshadowed by the booming prosperity of Guanajuato which was situated only a day's journey away in the sierra. Founded in 1576 as a military outpost to safeguard the silver trains from Chichimeca attack, the villa of San Sebastián de León soon benefited from its commercially advantageous position at the western border of the Bajío, straddling the trade routes which led to Zacatecas and Guadalajara. The town also served as the administrative capital of an extensive alcaldía mayor, which included the districts of Pénjamo, San Pedro Piedragorda and Rincón. But the main purpose of the town was to serve as a place of residence for local landowners and farmers.

From the outset the small band of Spanish settlers were joined by free mulattoes and Indians. In 1591 a few Otomies set up a small village called San Miguel a few hundred yards south of the main square, and some years later another group of Indians, possibly Tarascans, built a second pueblo, called Coecillo, on the eastern outskirts of the town. That Indians moved into this zone some years after the Spanish occupation is confirmed by the comparatively late foundation of San Francisco de Rincón in 1605, and still more by the viceregal recognition of its neighbour, Purísima de Rincón, in 1648.