The period that followed the establishment of the new Constitution is called the "early Republic," and it witnessed the rise of what scholars consider the "first" two-party system in the United States. Essentially, the two parties coalesced around differing perspectives on the major issues that confronted the nation. These issues were generally related to economic and foreign policy concerns, and the two parties, the Federalists and the Republicans (sometimes called the Democratic-Republicans), emerged around two men, Alexander Hamilton and Thomas Jefferson. Hamilton, Secretary of the Treasury under President George Washington, argued for a robust federal government and advocated several measures to combat the fiscal concerns of the new nation (federal assumption of state debt and a Bank of the United States, in particular) that would achieve that end. Hamilton and his followers argued that the nation was only sustainable through the support of rich men, and he went about building an economic system that would support their interests. Hamilton and the "Federalists," as they became known, ultimately sought to build a powerful central government and an economy based on industry, a system similar to that of Great Britain. When war broke out between Great Britain and France as a consequence of the French Revolution, the Federalists generally favored Britain.

Thomas Jefferson, Secretary of State under Washington, opposed all of these measures. He believed Hamilton's plan would lead to widespread corruption and tyranny, as it gave too many powers to the federal government at the expense of the states. He also believed that, rather than an industrial power, the United States should become a nation of small farmers. Admiring the egalitarian impulses of the first wave of the French Revolution, he favored the French in their war against Great Britain. His followers, over time, became known as "Republicans," or "Democratic-Republicans."

These parties were far from the organized entities they are today, especially under Washington, who expressed his antipathy for political parties and the "spirit of party" in general in his Farewell Address. But by the Presidential election of 1796, the parties were, in effect, well-established, even though John Adams (usually categorized as a Federalist) differed from Hamilton and a group of hard-core ideologues on a number of matters. By the election of 1800, the parties were a fact of political life in the United States, and indeed that election—which pitted Adams against Jefferson—was among the most bitter partisan fights in American history. It featured many of the long-running political differences between the parties, including accusations of Adams's allegedly cozy ties with Great Britain and Jefferson's supposed French-style radicalism. The extent to which parties had altered the political landscape was revealed in the electoral results themselves. The emergence of parties, not really accounted for in the Constitution, led to an electoral tie between Jefferson and fellow Republican Aaron Burr.

Over the next few decade, Republicans steadily increased in power, owing in no small part to the addition of new western states whose settlers typically shared Jefferson's vision of government. The death knell of the Federalist Party, and thus the first two-party system, was the War of 1812. Opposed by Federalists in New England, the war led to a surge in nationalism, and when the United States emerged victorious (or at least not as losers), Federalists were politically toxic. Democratic-Republicans, as they were increasingly called, came to control the federal government for a very short spell known as the "Era of Good Feelings," and partisanship, if not political turmoil, subsided.