A disputed 1804 treaty with the Sauk and affiliated tribes led to the U.S. claim of control over Western Illinois and parts of what is now Iowa. To establish control, the U.S. Army set out to construct a post near the mouth of the Des Moines River, a major trading route into the interior of Iowa. Not finding suitable land near the mouth of the Des Moines River, the expedition also considered land near Quashquame's, Sauk and Meskwaki village at the head of the Des Moines Rapids, a choke point of trade and transportation on the Upper Mississippi River below modern Montrose, Iowa. Again, this land was not considered suitable for a fort. The Army settled on a location several miles upstream at what is now the City of Fort Madison.

Black Hawk lamented over the new fort, and disparaged its construction in his autobiography, "A number of people immediately went down to see what was going on, myself among them. On our arrival, we found they were building a fort. The soldiers were busily engaged in cutting timber, and I observed that they took their arms with them when they went into the woods. The whole party acted as they would do in an enemy's country. The chiefs held a council with the officers, or headmen of the party, which I did not attend, but understood from them that the war chief had said that they were building homes for a trader who was coming there to live and would sell us goods very cheap, and the soldiers were to remain to keep him company. We were pleased with this information and hoped that it was all true, but we were not so credulous as to believe that all these buildings were intended merely for the accommodation of a trader. Being distrustful of their intentions, we were anxious for them to leave off the building and go back downriver."

Almost from the beginning, the fort was attacked by Sauk and other tribes. U.S. troops were harassed when they left the fort, and in April 1809 an attempted storming of the fort was stopped only by the threat of cannon fire.

During its existence, several improvements were made to the fort, including reinforcing the stockade and making it higher, extending the fort to a nearby bluff to provide cover from below, and constructing additional blockhouses outside the stockade. These improvements could not fully compensate for the poor location of the fort, however, and it was again attacked in March 1812 and was the focus of a coordinated siege in the following September. The September siege was intense, and the fort was nearly overrun. Significant damage resulted in fort-related buildings, and the attack was only stopped when cannon fire destroyed a fortified Indian position. Black Hawk participated in the siege and claimed to have personally shot the fort's flag down.

As the War of 1812 expanded to the frontier, Britsh-allied Sauk and other tribes began a determined effort to push out the Americans and reclaim control of the upper Mississippi. Beginning in July 1813, attacks on troops outside the fort led to another siege. Conditions were so dangerous that the bodies of soldiers killed outside the fort could not be recovered, and troops could not leave the fort to collect firewood. Outbuildings were intentionally burned by the Army to prevent them from falling into Indian hands.

After weeks of paralyzing siege, the Army finally abandoned the post, burning it as they evacuated. They retreated in the dark through a trench to the river, where they escaped on boats. The date of the abandonment is unknown, as much of the military correspondence from this period of the war is missing, but it probably happened in September. Black Hawk observed the ruins soon after. "We started in canoes, and descended the Mississippi until we arrived near the place where Fort Madison had stood. It had been abandoned and burned by the whites, and nothing remained but the chimneys. We were pleased to see the white people had retired from the country."

Three active battalions of the current 3rd Infantry (1-3 Infantry, 2-3 Infantry, and 4-3 Infantry) perpetuate the lineage of the old 1st Infantry Regiment, which had a detachment at Fort Madison.

Early settlers built their homes near the ruins, and the town that grew up around them was named for the fort. A large monument was erected in the early 20th century at the fort location. Archaeological excavations in the parking lot of the Sheaffer Pen Company factory in 1965 exposed the central blockhouse of the fort, as well as the foundations of officers' quarters. The site was listed on the National Register of Historic Places in 1973. A replica fort was built several blocks away; much of the labor was supplied by volunteer inmates at the nearby Iowa State Penitentiary.