Created in 1863 from a merger of the Williamstown and Flagstaff observatories, the Melbourne Observatory was established in the Kings Domain with R.L.J. Ellery as director and Georg Neumayer, until his return to Germany in 1864, continuing his magnetic and meteorological work begun on Flagstaff Hill. With the acquisition in 1868 of a 48-inch (122-cm) reflector, the Great Melbourne Telescope, one of the largest operating telescopes in the world at the time it was installed, the Observatory was the biggest and best equipped in Australia in the colonial era.
Initially acquired to allow a survey of southern-hemisphere nebulae to complement one already undertaken in the north, the Great Melbourne Telescope proved not readily adaptable to other tasks, and never became a vehicle for another major research program. Other, smaller telescopes were used for a highly regarded program of meridian observations of stellar positions. In 1887 Melbourne Observatory became responsible for the zone between 65o and 90o south latitude of the Astrographic Catalogue, a multinational collaboration to chart the entire sky photographically, and the work associated with this, though never properly completed, absorbed most of the Observatory's resources in the 20th century.
The Observatory was also, in succession to the Flagstaff Observatory, the hub of Victoria's meteorological service. This expanded rapidly in the 1870s with the introduction of the modern system of recording weather details in standardised form several times a day at meteorological stations throughout the colony and transmitting them by telegraph to Melbourne where, together with data from the other Australasian colonies, they were used to construct synoptic charts that became the basis for issuing weather forecasts. When this popular service was transferred to the newly established Commonwealth Bureau of Meteorology in 1908, the Observatory lost an important element of its political support.
Melbourne Observatory made the astronomical determinations required for the geodetic survey of Victoria, and maintained local standards of length and mass. It also provided the local time service and in due course national standard time within the system of standard time first adopted by the Australian colonies in 1895. When the Melbourne Observatory closed, responsibility for the time service was transferred to the Commonwealth Observatory on Mount Stromlo.
Neumayer's program of geomagnetic measurements was kept up after his departure, his magnetometers being replaced by continuously recording instruments in 1867. The electrification of the tram lines in nearby St Kilda Road would have affected the readings of the magnetometers, so in 1919 these were relocated to Toolangi in the hills north-east of Melbourne, where recording continued until 1986.
Ellery retired as director in 1895 and was succeeded by his former assistant, Pietro Baracchi. By then, budget cuts associated with Victoria's economic collapse in the 1890s had led to drastic staff reductions, and encroaching city lights made astronomical research increasingly difficult. Shorn, too, of its meteorological work, but weighed down by the work for the Astrographic Catalogue, the Observatory limped along at a much-reduced level under its last director, J.M. Baldwin, who succeeded Baracchi in 1915. It finally closed in 1944. Most of the instruments were transferred to Mount Stromlo, where the mothballed Great Melbourne Telescope was later refurbished. Subsequently the buildings were occupied by various agencies including the government's Weights and Measures Branch. In 1998 they were incorporated in a new entrance to the Royal Botanic Gardens.