Early scholarship on Ottoman modernization has primarily focused on state-led initiatives to revitalize the empire. While these studies were necessary, they often overlooked the role of non-state actors in shaping the modernization process. Recent research has helped to address this gap by highlighting how Ottoman citizens contributed to modernization. This paper adds to this body of research by examining the emergence of informal settlements in the 19th century as a form of grassroots modernization. Throughout the 19th century, Ottoman elites introduced various regulations to formalize urban spaces, often based on European models. These regulations distinguished between legitimate urban development and traditional or informal settlements. Traditional settlements comprised a significant portion of Ottoman cities and were considered fair due to their long history and social acceptance. However, informal settlements, which emerged as a modern phenomenon, were increasingly seen as a problem by local and central authorities by the 1890s. For residents of informal settlements, these spaces represented a response to the inadequacies of formal urbanization and state policies in addressing modern urban challenges. In the early 1880s, Muslim immigrants, including marginalized groups like Romanies, faced a housing crisis after being evicted from state-provided temporary shelters in 1883. They began occupying marginal plots near railways, quarries, rivers, or graveyards, constructing shelters from salvaged materials like waste boards and oil cans. Armenians, Greeks, and Jews from the most vulnerable segments of their communities also joined them in search of affordable housing. The earliest informal settlements took place in various locations such as Kumkapı, Nişantaşı, Göztepe, Kireçburnu, and Feriköy. The state responded to the growing presence of informal settlements by developing monitoring mechanisms and alternative housing policies. This paper sheds light on the early formation of informal settlements around the Ottoman capital, drawing on archival materials from Ottoman archives in Istanbul and Sofia, supplemented by documents from the Library of Congress, including newspaper collections and the papers of US diplomatic staff stationed in the Ottoman Empire.