In 1840 the Act of Union was passed. It became effective the next year and joined Upper and Lower Canada under a central government. Henceforth the two colonies were to be known simply as Canada West and Canada East, respectively. There was to be an appointed upper chamber, or legislative council, in the new government as well as an assembly composed of the same number of elected members from each of the two old colonies. The seat of government was established at Kingston; but after 1844 it was moved to Montreal, then back and forth between Toronto and Quebec, and finally to Ottawa in 1865.

In the first several years of this period, the principle of complete self-government and the subordination of the governor's authority to that of Parliament was developed and finally accepted. It was a critical time in the constitutional history of Canada, and the ability of the two chief Canadian nationality groups to get along with each other was tested for many years.

Each side produced great public men. Prominent were Robert Baldwin from Canada West and Louis Hippolyte Lafontaine from Canada East (see Baldwin, Robert). Both men had taken part in the agitation preceding the rebellions of 1837, but they had stood apart from the extreme measures that led to armed insurrection. Both had grasped the meaning of responsible government. By joining forces they formed a strong coalition during the early years of the new government, and the result was that much legislation was carried through. Included were laws for establishing municipal governments, for founding the University of Toronto as a nonsectarian institution, and for changing the system of law courts.

The real test of the principle of responsible government took place in 1849. Parliament passed the Rebellion Losses Bill, which had to go before the governor-general, James Bruce, earl of Elgin, for his signature to become law. The bill provided for compensation to those who had suffered during the rebellion of 1837 in Lower Canada. It was violently opposed by many of the Tories, who felt that tax money was being turned over to former rebels.

There was some question as to whether or not Elgin would sign the bill as his ministers advised him to do. When Elgin decided that he must sign into law whatever bill was recommended to him by his Cabinet, he was made the object of a torrent of abuse from the Tories. Elgin's carriage was attacked, and his house was stoned. Furthermore, rioting broke out, and the Parliament Buildings in Montreal were razed by fire. Out of the ashes of the government buildings, however, was born true colonial self-government that embodied the principle of responsible cabinet rule.