The Virginia Assembly in 1779 encouraged migration to Kentucky by providing Revolutionary War veterans with land grants. The legislature also sold land through treasury warrants and granted four-hundred-acre claims to settlers after one year's residence and production of a corn crop.

In 1785 settlers, many having moved south of Fort Boone to the banks of Otter, Silver, and Tates Creeks, petitioned Virginia's legislature to separate from Lincoln County. Their request was approved, and the new county was established on August 22, 1786. It was named for Virginia statesman James Madison who later became the fourth president of the United States (1809-1817). The sixth Virginia county in the Kentucky area, Madison originally extended east-southeastward to the present Kentucky-Virginia state line and included land that now comprises five counties and a portion of nine others.

Madison countians, like other Kentuckians, grew discontented under Virginia's control within a short period of time. Under-representation in the Virginia legislature, remoteness from official records and decision makers, as well as confusion over land claims increased their aggravation and caused them to call for statehood. Congress approved the petition for statehood in 1791. Three delegates from Madison County attended the convention of 1792, which wrote the necessary constitution for admission to the Union.  Upon completetion of the constitution, the Commonwealth of Kentucky became the fifteenth state.

During the early years of Madison County's existence, Boonesborough thrived as a community. It contained over one hundred houses by 1790, a commons of over five hundred acres, a warehouse, a ferry, and a post office. When Kentucky became a state in 1792, thirty-three citizens of Madison County offered the new Commonwealth considerable land and money to select Boonesborough as the new state capital. After the rejection of their proposal, the prosperity and population of the town rapidly declined. Frequent flooding also retarded growth, and little remained by the 1820's to identify Boonesborough as a town.

The town of Milford was chosen as the Madison County seat in 1786 and its governmental functions were initially run from nearby private facilities.  The first courthouse, a stone and wood structure, was built in 1788 in MIlford, overlooking the southern branch of Taylor's Fork Creek, which discharged into Silver Creek.  Unfortunately, Milford was ill-sited on a hillside and had limited water supply, both of which constrained potential for growth. Ten years later the Kentucky legislature authorized the removal of the county seat to land owned by Colonel John Miller. Miller was a Revolutionary War veteran, a farmer, and one of Madison County's first three state representatives. When he came to Kentucky in 1784, Colonel Miller bought William Hoy's 1,000-acre pre-emption for $1,000, settled along Otter Creek, and erected a house and barn near the present site of the Madison County Courthouse. The county court acquired two acres of Miller's land for public buildings on a hill surrounding his barn, and the court records were removed from Milford. Bitter opposition resulted, ceasing only after a reputed four-hour fight and a $1,600 payment to angry Milford residents. In spite of the compensation, Milford never recovered from the loss, and resentment continued.

On July 4, 1798, Madison County's new county seat was officially named "Richmond" in honor of Colonel Miller's birthplace in Virginia. The trustees of Richmond ordered that fifty acres of land owned by Colonel Miller and Colonel James Barbour be surveyed and laid off into lots and streets by surveyor Major John Crooke. Robert Rodes, one of the trustees, was named superintendent to oversee the construction of a new courthouse. Tyra Rodes designed a two-story brick courthouse which was built in 1799 on the site of John Miller's barn. This structure, consisting of eight rooms and an underground brick vault, stood for over fifty years until the present courthouse was erected in the same location.

The county's early history was dominated by one particular leader, General Green Clay. Having arrived in the area in 1780, he purchased 1,400 acres of land in 1785 from the Reverend John Tanner of Tates Creek. Green Clay wielded tremendous influence on the political and economic affairs of Madison County as a county court magistrate for nearly forty years. A self-made entrepreneur, Clay developed a vast empire, owning over 40,000 acres by 1800 as sell as ferries, taverns, warehouses, grist mills, distilleries, toll roads, and slaves. Green Clays descendants played significant roles in county, state, and national history. Particularly noteworthy is his son Cassius Marcellus Clay who became an antislavery advocate, Ambassador to Russia, and influential politician.

Information taken from Lavinia H. Kubiak's book Madison County Rediscovered:  Selected Historic Architecture  (1988) 

Additional information provided by Tom Black