Following the Sepoy Revolt, the British East India Company was dissolved in 1858, and India became a viceroyalty under direct British rule. In 1877, Queen Victoria took the title of "Empress of India". To safeguard the Indian colonies, buffer states were created around the borders of India: Nepal in 1816, Bhutan in 1865 and Sikkim in 1890. Between 1876 and 1887, part of Baluchistan, west of the Indus River, was annexed as part of British India (part remained in the Persian empire). The Northwest Province, after years of skirmishing with the independent tribes here, was established in 1901. This finally brought some peace along the border with Afghanistan.

The partial industrialization of India, with the construction of railways, telegraph lines, irrigation projects and harbours, did not bring prosperity to most Indians. The import of British industrial products, especially clothes, destroyed the self-supporting village economies found in most of rural India, and the decline of the native cotton producing industry. Overpopulation and unemployment were major problems. In 1896 and '97 there were epidemics and mass starvation.

Sister Nivedita was born as Margaret Elizabeth Noble in Ireland in 1867. She became a teacher in England and during this time met Swami Vivekananda, an Indian philosopher, in London. Greatly attracted by his teachings, she accepted him as her master and followed him back to India where she became known as Nivedita. She dedicated herself to improving the life of Indian women. In the early part of the 20th century, many national leaders of India where inspired by her fiery spirit. Sister Nivedita also retold many traditional Indian stories, which can be found in the book Cradle Tales of Hinduism. The Nivedita Girls' School, founded by her in Calcutta, stands as a monument to her. She died in 1911.

Europeanized Indians, who had gone through the British educational system, led the movement for Indian independence. The Indian National Congress was founded in 1885 to participate in the British-run government of India. The British were at first reluctant to allow native Indians a real role in running the colony. In 1892, Indians received a conditional right to vote. As well, Indians were also allowed to serve as higher officials in local and provincial governments, and could also serve on the council of the viceroy (the British governor of India).

The partition of Bengal in 1905 to create a new province with a Moslem majority led to conflict with Hindu nationalists, and resulted in the boycott of British textiles and bombings. Encouraged by the Japanese victory over Russia in 1905, (the first time a modern Asian army had defeated a modern European one), more extreme Indian nationalists called for the end of colonial status for India. In the 1916 Pact of Lucknow, Hindus and Moslems joined together to demand autonomy from Britain.