Ithaca became a transshipping point for salt from curing beds near Salina, New York to buyers south and east. This prompted construction in 1810 of the Owego Turnpike. When the War of 1812 cut off access to Nova Scotia gypsum, used for fertilizer, Ithaca became the center of trade in Cayuga gypsum. The Cayuga Steamboat Company was organized in 1819 and in 1820 launched the first steamboat on Cayuga Lake, the Enterprise. In 1821, the village was incorporated at the same time the Town of Ithaca was organized and separated from the parent Town of Ulysses. In 1834, the Ithaca and Owego Railroad's first horse-drawn train began service, connecting traffic on the east-west Erie Canal (completed in 1825) with the Susquehanna River to the south to expand the trade network.
With the depression of 1837, the railroad was re-organized as the Cayuga & Susquehanna. It was re-engineered with switchbacks in the late 1840s; much of this route in the late 20th century was converted to trails under the Rails to Trails program; it is used by the South Hill Recreation Way.
However, easier railroad routes were constructed, such as that of the Syracuse, Binghamton & New York (1854). In the decade following the Civil War, railroads were built from Ithaca to surrounding points (Geneva; Cayuga; Cortland; and Elmira, New York; and Athens, Pennsylvania), mainly with financing from Ezra Cornell. The geography of the city, on a steep hill by the lake, has prevented it from being directly connected to a major transportation artery. When the Lehigh Valley Railroad built its main line from Pennsylvania to Buffalo, New York in 1890, it bypassed Ithaca (running via eastern Schuyler County on easier grades), as the Delaware, Lackawanna and Western Railroad had done in the 1850s.
In the late 19th century, more industry developed in Ithaca. In 1883 William Henry Baker and his partners started the Ithaca Gun Company, making shotguns. The original factory was located in the Fall Creek neighborhood of the city, on a slope later known as Gun Hill, where the nearby waterfall supplied the main source of energy for the plant. The company became an icon in the hunting and shooting world, its shotguns famous for their fine decorative work. Wooden gunstocks with knots or other imperfections were donated to the high school woodworking shop to be made into lamps. John Philip Sousa and trick-shooter Annie Oakley favored Ithaca guns. In 1937 the company began producing the Ithaca 37, based on a 1915 patent by noted firearms designer John Browning. Its 12-gauge shotguns were the standard used for decades by the New York Police Department and Los Angeles Police Department.
In 1885, Ithaca Children's Home was established on West State Street. The orphanage had two programs at the time: a residential home for both orphaned and destitute children, and a day nursery. The village established its first trolley in 1887. Ithaca developed as a small manufacturing and retail center and was incorporated as a city in 1888. The largest industrial company in the area was Morse Chain, elements of which were absorbed into Emerson Power Transmission on South Hill and Borg Warner Automotive in Lansing, New York.
Ithaca claims to be the birthplace of the ice cream sundae, created in 1892 when fountain shop owner Chester Platt "served his local priest vanilla ice cream covered in cherry syrup with a dark candied cherry on top. The priest suggested the dessert be named after the day, Sunday although the spelling was later changed out of fear some would find it offensive." The local Unitarian church, where the priest, Rev. John Scott, preached, has an annual "Sundae Sunday" every September in commemoration. Ithaca's claim has long been disputed by Two Rivers, Wisconsin. Also in 1892, the Ithaca Kitty became one of the first mass-produced stuffed animal toys in the United States.
In 1903 a typhoid epidemic, resulting from poor sanitation infrastructure, devastated the city. One out of 10 citizens fell ill or died.
In 1900 Cornell anatomy professor G.S. Moler made an early movie using frame-by-frame technology. For The Skeleton Dance, he took single-frame photos of a human skeleton in varying positions, giving the illusion of a dancing skeleton. During the early 20th century, Ithaca was an important center in the silent film industry. These films often featured the local natural scenery. Many of these films were the work of Leopold Wharton and his brother Theodore; their studio was on the site of what is now Stewart Park.
The Star Theatre on East Seneca Street was built in 1911 and became the most popular vaudeville venue in the region. Wharton movies were also filmed and shown there. After the film industry centralized in Hollywood, production in Ithaca effectively ceased. Few of the silent films made in Ithaca have been preserved.
After World War II, the Langmuir Research Labs of General Electric developed as a major employer; the defense industry continued to expand. GE's headquarters were in Schenectady, New York, to the east in the Mohawk Valley.