Cheadle Royal Hospital was founded in 1766, a time when there were only two other mental hospitals in England (Bethlem and St Luke's). MRI had been treating insane patients as out-patients, but they were barred from admission as in-patients. Amidst growing concern about the abuses of private madhouses, a new hospital for these patients was built adjoining the Infirmary. The Manchester Lunatic Hospital opened and took its first patients in 1766, it provided cells for 24 patients. The Hospital was originally part of the Manchester Infirmary; it was governed by a board of trustees appointed from MRI trustees, but the hospital was financially independent. The title of the Infirmary was changed to reflect the new hospital, and was now called The Infirmary, Dispensary, Lunatic Hospital and Asylum in Manchester. The new hospital was founded in a spirit of liberal humanity; it avoided the excesses of bad treatment found at many private institutions, but there was not a radical departure in the way patients were treated medically. While the law did not require a medical certificate for admission, Manchester only admitted patients with an order signed by the physician and four of the trustees. Unlike other voluntary hospitals, the hospital required payment for patients. This would enable the Hospital to retain financial independence, and avoid some of the difficulties in raising funds. Patients were paid for either by their family or by poor law authorities. The Lunatic Hospital was inspected by trustees and there was a tradition of patients' rights; physicians and apothecaries regularly attended patients and kept medical records. Dr John Ferriar, one of the Infirmary's physicians, gives and account of the treatment regime in his book, Medical Histories and Reflections (1795). By 1787 the Lunatic Hospital was larger than the main Infirmary, by 1800 it had over 100 beds. The Hospital expanded rapidly, although the establishment of county asylums from 1810 reduced demand somewhat.
By the mid-nineteenth century the Piccadilly site had become built up and noisy, rendering it unsuitable for the care of mental patients. In 1845, the trustees purchased a site in Cheadle (then called Stockport Etchells). The hospital moved to Cheadle in 1849, changing its name to The Manchester Royal Hospital for the Insane. The Hospital was built with space for 80 patients, which at the time seemed generous. The site was originally 37 acres, but land was later added to give approximately 250 acres. As paupers were treated in county asylums, the Manchester Royal Hospital was largely for members of the middle classes, although it later had to reduce charges to increase the numbers of patients. The new Hospital was established as a curative hospital, providing treatment in the form of non-compulsory manual labour and recreation. The Hospital aimed to treat the patient, not merely to protect the public. From the 1860s there was a move to provide more space for rapidly increasing numbers of admissions, and to accommodate patients in more homely surroundings. Some patients were housed in villas on the Cheadle site, and further houses were rented in the local area. This period also saw the establishment of The North Wales Branch of the hospital. A number of houses in Colwyn Bay were rented in the 1870s, providing accommodation for nine ladies. Several of these houses operated at a loss and communication was difficult, so it was decided to create a Branch Hospital in North Wales. Management of the Branch Hospital became distinct from Cheadle at the start of the twentieth century, and the Hospital was established as a convalescent hospital in 1911. It changed its status again in 1954 becoming a nursing home, before closing in 1960. The work of Dr Mould (superintendent from 1862) raised the Hospital in terms of growth and professional reputation; his pioneering use of villas became known as the 'Cheadle System'. From 1863 the Hospital pioneering the admission of voluntary patients, known as boarders. The Hospital also provided proper training for nurses, which was unusual in psychiatric hospitals at the time.
The name was changed in 1902 to Cheadle Royal Hospital, removing some of the stigma of the previous name. Rising patient numbers required alterations to the building and in 1903 a new hospital, 'North House', was erected on site. By the time Dr Mould retired in 1903, Cheadle was one of the largest registered mental hospitals in England. Due to the increasing labour costs of the 1920s, Cheadle Royal was forced to curtail some of its activities and reduce the extent to which it subsidised patients' fees. In 1923, the Hospital ended the provision of clinical education for Manchester University. By the 1930s, the Hospital was able to pioneer treatments such as occupational therapy, the new 'shock treatments', insulin treatments and neurosurgical operations. The advent of the NHS caused much discussion at Cheadle Royal; the decision was made not to join the NHS, necessitating a formal split with MRI.
In July 1948 the first committee of management of the independent Cheadle Royal was appointed by the Board of Management of MRI. A new link with the Manchester Regional Hospital Board was created when Cheadle offered thirty beds as NHS beds. Cheadle retained its emphasis on curative care in comfortable surroundings, an emphasis which necessitated high costs. As a private hospital, Cheadle became one of the most progressive mental hospitals in the country. The concept of a 'total push,' using all the resources and treatments available to help the patient recover, resulted in an increased recovery rate. The hospital was opened up (less wards were locked), patients did paid production work to provide an incentive for occupational therapy, and an out-patient department was opened. In 1957, with support from the Nuffield Provincial Hospitals' Trust, Cheadle Royal established a research department at the hospital. The first research project was into the costs of mental illness and the efficiency of hospitals. Cheadle Royal Hospital now offers various mental health services and provides nursing homes for people suffering from ageing related mental health problems. It continues to have a close relationship with the NHS, providing beds for NHS patients and conducting Nurse Training in conjunction with NHS hospitals. In the 1990s, changes to the NHS and nurse training resulted in the closure of North Hospital and severe financial problems, and in 1997 the hospital was sold to a new business formed by the senior management team, becoming Cheadle Royal Hospital Limited.