The hospital was founded by W J Sanderson, a Newcastle philanthropist. It was originally known as the W J Sanderson Home for Destitute and Crippled Children and was initially begun in premises at Whickham in 1888. These buildings swiftly became too small, and the hospital moved to the Red House in Wallsend on 1 June 1889. The final move in 1897 was to Salters Road, Gosforth when the Wallsend premises were no longer suitable. In 1914 an extension was built on to the Gosforth building so that more patients could be treated.
Originally the aim of the institution was to care for destitute children with a physical handicap who were not suitable to be housed in the workhouse. Increasingly, the hospital became known for the work done in the field of orthopaedic surgery and in the treatment of physical handicaps in children caused by dietary deficiency. In 1934 the home was designated as an Orthopaedic Hospital and the treatment of adults began there.
Until the implementation of the National Health Act of 1947, the Sanderson Orthopaedic Hospital continued as an independently run institution specialising in the care of physically handicapped children (the hospital had its own school). After July 1948, the hospital was run by a Hospital Management Committee as part of the National Health Service. It became the long-stay orthopaedic hospital for the Newcastle area, and although it continued to treat children, the ratio of adults to children was more balanced. After the reform of the N H S in 1974, the hospital was given over to the care of the elderly under the control of Newcastle Area Health Authority.