The hospital was established as a continuation of the Toptaşı Bimârhane in the Atik Valide Complex in Üsküdar. The relocation process, which began in 1924 with the approval of then President Mustafa Kemal Atatürk, Prime Minister İsmet İnönü and Minister of Health Refik Saydam, was completed on June 15, 1927 and Toptaşı Bimârhane was closed.

The hospital continued to serve on the grounds of the Reşadiye Barracks under the name Istanbul Emraz-ı Akliye ve Asabiye Hospital. The hospital was founded and developed with the support of Dr. Mazhar Osman (1884-1951), who is also considered the founder of modern psychiatry in Turkey, and his students Dr. Fahrettin Kerim Gökay, Dr. Şükrü Hazım Tiner, Dr. Ahmet Şükrü Emet and Dr. İhsan Şükrü Aksel.

Ord. Prof. Dr. Mazhar Osman contributed to the development of psychiatry, neurology and neurosurgery in Turkey. He pioneered the establishment of a neurosurgery service in the hospital. In addition to these, he changed the concepts and understandings about mental illnesses; he made a significant contribution to the recognition of psychiatry as a branch within medicine and its recognition in our country; and many physicians chose psychiatry as their specialization. He contributed many works to the medical literature and continued to serve as chief physician until 1940.