In 1873, five brothers called Nicolson, all from the burgh of Stornoway, donated money to help establish the school. The second youngest of these bothers, Alexander Morison Nicolson, is considered to be the founder of the school; when he was tragically killed by a boiler explosion on board a ship in Shanghai harbour at the age of thirty-three, he left almost £2000 in his will to found a school in his native town - "for the education and rearing of destitute children, in the hope that I may be indirect means of rendering some assistance to the children of some of my oldest acquaintances".
The School was managed by a Board of Trustees until it was transferred to the Stornoway School Board’s management.
The School was renamed from the Nicolson Institution to The Nicolson institute in 1901.