By the start of 1850 Congress had failed to provide any formal civil government to any part of the new Mexican Cession because sectional wrangling over the divisive Wilmot Proviso had blocked any action. Yet by 1850 congressional action was necessary for several reasons. Over one hundred thousand people had poured into California during the famous Gold Rush of 1849, and some kind of government had to be established for it. In addition, there was an increasingly dangerous quarrel over the boundary between Texas and New Mexico. Texas claimed all the land east of the Rio Grande, including Santa Fe, but its residents and US troops stationed there contended that New Mexico extended eastward almost to San Antonio. By June of 1850, indeed, there was a real possibility of a military clash between Texas militia and US troops over Santa Fe. In addition, by early 1850 some Southerners were clamoring for a more effective federal fugitive slave law while many northern congressmen resurrected a demand that public slave sales in the District of Columbia be banished.

Ignoring these latter two issues, Whig President Zachary Taylor's solution for the Mexican Cession was to skip a formal territorial stage to which the Wilmot Proviso might be applied and admit the entire area as two new free states — New Mexico and California, which he hoped would encompass the Mormons around Salt Lake. Once New Mexico became a state, Taylor argued, the Supreme Court could adjust the boundary between it and Texas. Taylor's proposal lacked sufficient support to pass either house of Congress, so Congress itself, much to Taylor's anger, devised a legislative package to resolve the sectional disputes. Famous ever after as the Compromise of 1850, this package is usually associated with resolutions proposed by Kentucky's Whig Senator Henry Clay in late January 1850. But Clay's original proposals garnered even less support than Taylor's had, and Democrats who controlled both chambers of Congress actually proved to be the pivotal players in shaping and passing the Compromise of 1850 eight months after Clay first spoke. In its final form the package of laws that constituted the Compromise of 1850 did the following. California with its modern boundaries was admitted as a free state. The remainder of the Mexican Cession was organized into two territories — New Mexico and Utah — on the basis of popular sovereignty. The Texas/New Mexico border was adjusted to its modern shape, and Texas was reimbursed by the United States for giving up its claims by a payment of $10 million, half of which was reserved to pay off Texas's bonded indebtedness. Public slave sales in the District of Columbia were forbidden. And a far more rigorous Fugitive Slave Act, that would require northern citizens to become slave-catchers, was passed.

Neither partisan nor sectional lines appeared on the votes on these measures. Instead the Compromise's supporters consisted primarily of northern Democrats and southern Whigs, while its foes consisted almost exclusively of northern Whigs and southern Democrats, each of whom complained that the Compromise gave the other section too many concessions. Nor would the Compromise ever have passed Congress had not Taylor died on July 9 and the new Whig President Millard Fillmore thrown the weight of his administration behind it. However contentious the struggle in Congress had been, by 1852 both Whigs and Democrats endorsed the Compromise as a final settlement of all Slave questions, and by then most Americans believed that the sectional conflict over slavery extension was a thing of the past.