Although fur trading and settlement did not go well together, Thomas Douglas, earl of Selkirk, became interested in the possibilities of settling Scottish farmers who had lost their farms at home in the fertile valley of the Red River near present-day Winnipeg. From the Hudson's Bay Company he purchased a huge tract of 100,000 acres in this area. In 1812 the first group of Selkirk's settlers from Scotland and Ireland began to arrive from Hudson Bay, where they had spent the previous winter.

The jealousy of the Nor'westers, as well as of the half-breeds, known as metis, was aroused immediately. Fighting broke out between the new settlers and the established traders. The colony was permanently established in 1817, when Selkirk himself arrived with a force of military veterans to put an end to the troubles and to punish the traders, whom he held responsible for the bloodshed that had occurred. The North West Company, a rival fur trading company, brought a lawsuit against Selkirk for the action he had taken, and he was forced to pay damages. Although Selkirk returned to Great Britain in poor health in November 1818 and died a disappointed man a few years later, he had begun the first permanent settlement on the Canadian prairies. 

The War of 1812

Meanwhile the British colonies far to the east found themselves involved with the United States in a new war that threatened to end their existence under the English flag. The declaration of war announced by the United States had several causes. Chief among these was Britain's insistence on its right to search American vessels for deserters from its own navy during the war against Napoleon. In addition, England had interfered with American trade with Europe. It was claimed too that the British in Canada had been inciting the Indians against the American settlements along the northwestern frontier.

The early hopes of the United States to drive the British entirely from North America were dashed by a series of defeats at the hands of British regulars and Canadian militia forces. Fort Michilimackinac, at the entrance to Lake Michigan, was captured by the British soon after the outbreak of fighting and was not recaptured during the remainder of the war. An American attack across the Detroit border was not only forced back but, under the brilliant generalship of Gen. Isaac Brock, ably assisted by the Shawnee chieftain Tecumseh and his warriors, was turned into a disastrous defeat. The army defending Detroit was forced to surrender, and the fort itself fell into British hands. Later the same year, the United States launched an attack on the Niagara frontier. Brock was killed early during the fighting at Queenston Heights, but the invasion was repulsed.