The Ardwick and Ancoats Dispensary was established in one of the most populous industrial suburbs in Manchester and opened on 11 August 1828. The MRI, which undertook home-visits, had become unable to deal with the number of patients in Ancoats; the area cost more to the Infirmary than it provided in subscriptions. In consequence of a resolution passed by the Board of the Manchester Infirmary, the Ancoats Dispensary in Great Ancoats Street was founded. Most subscriptions to the Dispensary came from local manufacturers. The Dispensary dealt with outpatients and home-patients, and because of the industrial nature of the area in which it was situated, looked after a substantial quantity of accident cases. Ancoats had much experience in the treatment of infectious diseases; its physicians became very experienced in public health matters and the condition of the industrial working classes in general. James Kay, the welfare and educational expert, served as physician at Ancoats, publishing his Moral and Physical Condition of the Working Classes in 1832.
In 1850 the Dispensary moved to a site at Ancoats Crescent. When this land was purchased by the Midland Railway Company in 1869 (later becoming the home of the Manchester University Settlement), the Dispensary was forced to move again, this time to 94 Mill Street. This year was the first year the Dispensary was not in debt as funds had been raised by local workers. These funds, managed by the Workpeoples' Fund Committee, enabled the building of the new premises at Mill Street, which was still part of the hospital until 1989. In 1875, Ancoats began a Provident Branch at the Hospital, being possibly the first institution of its kind to introduce such a scheme, this Dispensary later separated from the hospital to be managed by the Provident Dispensary Association (see Provident Dispensaries). A gift and bequest from Miss Brackenbury in 1873 had enabled the Dispensary to expand and become a hospital with space for fifty beds for inpatients. The hospital became officially the Ancoats Hospital and Ardwick and Ancoats Dispensary, usually shortened to Ancoats Hospital. However, there was not enough income to use all the beds. It was not until 1879 that in-patients were admitted and, even then, only six beds could be afforded. A new wing was added in 1888, bringing the number of beds up to 100 and enabling the transformation of Ancoats into an up-to-date, properly equipped hospital.
In the 1890s, the Board of Management at Ancoats wanted to build a convalescent home, to avoid dependence on other homes. This became possible in 1899 with the financial support of Mr and Mrs Frank Crossley and the donation by the David Lewis Trust of land at Sandlebridge, near Alderley Edge. The Convalescent Home was opened in 1904. It was used as a hospital for wounded soldiers during the First World War. The home was later used for children suffering from tuberculosis of the spine. It was closed in 1967 and transferred to the Mary Dendy Hospital.
The 1890s also saw the hospital offering a course of post-graduate lectures by staff. By 1905 the Hospital was recognised by the University as an institution where clinical instruction of students can be given. Although never an undergraduate teaching hospital, Ancoats was at the forefront of advances in medical science and nursing education, having very close links with the University Medical School through its medical staff. Ancoats quickly acquired a reputation for surgery and especially the treatment of industrial injury; several surgeons made their reputations there before moving to posts at MRI. Although the Hospital continued to suffer from financial constraints, great medical developments were made at Ancoats. In 1907, Alfred Ernest Barclay opened Manchester's first X-ray department. In 1914 a department of orthopaedic surgery began under Harry Platt, who opened a dedicated fracture clinic at the Hospital, the first of its kind in the world. In 1920 a School of Massage (later physiotherapy) was formed under Platt. A number of specialised departments appeared in the first half of the twentieth century, such as the Aural Department begun by Mr F. Holt Diggle in the 1920s.
Catering still for the workers of Ancoats, dealing with large numbers of industrial accidents, but away from the consciousness of the wealthy in South Manchester, the Hospital continued to struggle financially. In 1928 Ancoats launched a large centenary celebration and appeal for the building of an extension, despite being in the midst of depression, enough money was raised to erect a number of new buildings, which were opened by HRH Duchess of York on 9 July 1935. With the advent of the NHS in 1948, Ancoats Hospital was run by the North East Manchester Hospital Management Committee. Despite threats of closure in the 1950s, Ancoats saw modernisation and building work throughout the 1960s and 1970s, including a new out-patients and Accident Department. Yet another threat of closure came in 1979 with accident services moving to North Manchester General Hospital. Despite assurances that Ancoats Hospital would survive, transformed from a small general hospital into a specialist orthopaedic hospital, Ancoats Hospital was closed in 1989, replaced with an outpatients clinic.