Following the opening of the Potsdamer Railway Station in 1838, Potsdamer Platz – at that time still called "Platz vor dem Potsdamer Thor" – developed within a few decades from being a quiet and rather rural suburb into one of the busiest squares in Europe. It became far more well known than the adjacent Leipziger Platz, which had been laid out between 1732 and 1738 in the form of an octagon. Potsdamer Platz experienced a real building boom following the establishment of the German Empire in 1871. Berlin was in a lasting economic upswing, its wealthy citizens preferred to move outside the city gates, and the famous Tiergarten villas were built. The "Grand-Hotel Bellevue" and the "Palast-Hotel" opened at Potsdamer Platz before the end of the nineteenth century. The "Fürstenhof" followed in 1907, and the "Esplanade" a year later.

In the nineteen-twenties, Potsdamer Platz was the busiest square in Europe, with S-Bahn and U-Bahn urban railways, 26 tramlines and 5 bus routes passing through it. 20,000 cars passed through every day, and 83,000 travelers and commuters were counted at Potsdamer Railway Station. The first traffic lights in Europe, the pentagonal traffic tower erected at Potsdamer Platz in 1924, became a symbol of Berlin as a progressive metropolis. The architectural picture of Potsdamer Platz was constantly in flux. Old buildings were pulled down to make place for changing needs. Classicism was replaced by New Realism. The Gate Houses designed by Karl Friedrich Schinkel in 1824 stood next to the modern Columbus House built in 1931/32 by Erich Mendelsohn.