The founder of Cali, Sebastián de Belalcázar, came to the American continent in the third voyage made by Columbus in 1498. In 1532, after serving in Darién and Nicaragua, he joined Francisco Pizarro in the conquest of Perú. In 1534 Belalcázar separated from Pizarro's expedition to found the city of Quito, and later in his search of El Dorado he entered the territory of what is now Colombia, founding the cities of Pasto and Popayán.

On July 25, 1536, Belalcázar founded Santiago de Cali, first established a few miles north of the present location, near what are now the towns of Vijes and Riofrio. Under the orders of Belalcázar, captain Miguel Muñoz moved the city to its present location in 1537, where the chaplain Brother Santos de Añasco celebrated a mass in the place occupied by the Church La Merced today, and Belalcázar designated Pedro de Ayala as the first municipal authority.

During the Colonia (colonial period), Santiago de Cali was part of the gobernación of Popayán, which was part of Quito's Audiencia. Although initially Cali was the capital of Popayán's Gobernación, in 1540 Belalcázar moved this function to Popayán due to better weather.

Until the 18th century most of the territory of what is now Cali was occupied by haciendas (cattle farms and plantations of food, with some sugar cane), and the city was only a small town near the Cali River. In 1793, Cali had 6,548 inhabitants, 1,106 of whom were (African) slaves. The haciendas were the property of the dominant noble class with many slaves dedicated mostly to stockbreeding and raising sugar cane crops. Many of these haciendas became neighborhoods of the present city like Cañaveralejo, Chipichape, Pasoancho, Arroyohondo, Cañasgordas, Limonar, and Meléndez. Cali was strategically positioned for trade, centrally located in relation to the mining regions of Antioquia, Chocó, and Popayán. In the colonial period, the first trail for mules and horses between Cali and the port of Buenaventura was completed.