At the time of European settlement in 1788, the local Aboriginal people hunted ducks in the swampy marshes that were to become Hyde Park. Hyde Park is also understood to be the site of an important Aboriginal contest ground which is a part of the greater Aboriginal history of Sydney.
Until the mid 1820s, Aboriginal people travelled from all over Sydney and as far away as the Hunter and the Illawarra, to gather at a ceremonial contest ground to the south of the city. The exact location of this site of ritualized conflict settlement and resistance is unclear, but is believed to be around Hyde Park South. Bloody fist fights involving up to 100 people, spearings and beatings were used to resolve conflicts at the contest ground.
The Tank Stream was only a tiny rivulet which rose in marshy ground skirting the western slopes of the ground which later became Hyde Park. The seepage from the bed-joints of the underlying sandstone around the upper portion of its catchment, which headed about the centre of the park, filtered through the soil to form a definite channel near King and Pitt Streets.
From 1788 this was a place where soldiers could be quickly assembled in case of a convict rebellion. It was probably the site of a bloody battle between Aboriginal people and Europeans for control of land around Sydney.
Before Governor Phillip departed from the settlement in December 1792, he had drawn a line from the head of Woolloomooloo Bay to the head of Cockle Bay (now Darling Harbour) and noted in writing on the map that no land within the line was to be leased or granted and should remain the property of the Crown. The area of Hyde Park fell largely within this line, and became regarded as a sort of "Common" on the edge of the town. It was land that belonged to the people, rather than to the Governor or his officials. The settlers grazed their animals on it and used its brush and trees as firewood. It was gradually denuded of vegetation.
Before 1810 the area was known as "The Common," the "Exercising Ground", "Cricket Ground" or "Racecourse". Macquarie, in 1810, formally reserved it as open space, the first public park set aside in Australia. Macquarie named it "Hyde Park" after the great Hyde Park in London.
Ten days after Macquarie named it Hyde Park it was the venue for Australia's first organised horse race and it was used for races through the 1820s.
From the first attempts at structuring it the site has lent itself to a formal design. Emphasis on a central avenue was given by the 1832 extension of Macquarie Street south through the park and by its flatness. When this street extension was closed for a second time in 1851, its north–south line became a rudimentary public walk (known as "Lovers" Walk'); a derivation from the planted walks in English 18th century urban pleasure gardens.