Mission San Luis Obispo de Tolosa was founded in California as a vital component of the Spanish mission chain established by Father Junípero Serra in the 18th century. Designed to provide a place for the spiritual development of Native Americans and support colonial expansion, the mission was intended to help spread Christianity and European culture among California's indigenous populations. Following the founding of four previous missions, Serra founded Mission San Luis Obispo de Tolosa as the fifth in this mission chain on September 1, 1772, near the San Luis Obispo Creek. The site was favored for its lush surroundings, proximity to fresh water, and suitable land for agriculture, making it an ideal location for sustaining the mission community.

Father Serra and his team began the construction of the mission, which included a chapel and living quarters for the missionaries. The early years were marked by challenges including conflicts with indigenous tribes, food shortages, and natural disasters. However, through perseverance and diplomacy, the mission began to thrive, attracting local indigenous people who were offered shelter, education, and a chance to learn new agricultural techniques. The mission became a center for agricultural production and trade, significantly impacting the local economy and community structure.

As the mission grew in popularity, it became a significant point of social and cultural interaction between the Spanish settlers and the Native Americans. This interaction led to the establishment of a new cultural landscape in the region, where indigenous practices began to blend with European customs. By the late 18th century, the mission was formally recognized and included among the important Spanish missions that dotted the California coastline, reflecting the broader imperial goals of Spain in North America.