The idea for the establishment of Shehersaaz meaning Sheher (City) and Saaz (Maker) as a specialist institution dedicated to undertaking research and development in human settlements of Pakistan was conceived following the Second United Nations Conference on Human Settlements (Habitat II) held in Istanbul, Turkey in June 1996.

Shehersaaz was founded as a civil society group of concerned citizens, built and natural environment professionals and development practitioners in 1998. The main purpose of its founding was to highlight the development issues being faced by the human settlements in general and urban settlements of Pakistan in particular, and to work with concerned government and non-government organizations while mobilizing citizens for solution of these issues.

In late 1998, Shehersaaz was transformed from a mere idea into a practical reality. In early 1999, the office of the organization was established in Lahore—the provincial capital of the most populous province of Punjab and Pakistan’s second largest urban center. This was the year when the provincial government of Punjab and the local government of Lahore were all set to launch a mass transit system for the rapidly expanding metropolis. To generate a public debate around this mega transport development project and to extend technical advice therefrom, Shehersaaz organized The First National Conference on Urban Transportation Planning and Management in Pakistan.