The university was created by the Alberta government in 1970. It was part of the expansion of the higher educational system at that time: the University of Alberta had long been established, the University of Calgary was created after legislation had been changed, and an order in council created the University of Lethbridge.

In 1967, the Manning government announced its intention to establish a fourth University, but it was later delayed by two to three years. The University of Alberta wanted to expand rather than see another University open in Edmonton to compete with it. One proposal favoured establishing a Christian university instead of a secular one to cope with rising enrollment. One early suggestion for an alternative was an "Alberta Academy" that would take credits students had earned at multiple Universities and evaluate them for transfer, and perhaps even award a degree. A Department of Education ad hoc group favoured the establishment of a fourth University.

A group of University of Alberta graduates, including Preston Manning, influenced the development of an independent fourth University. In 1970 Grant MacEwan, the Lieutenant Governor of Alberta, established the University by an order in council. The name for the new university was a challenge, as it was not desired to associate the new university in a primarily rural province with a city that already had a University. Athabasca Hall, a student residence at the University of Alberta, was scheduled for demolition, so the name was appropriated for the new university.