With the decline of slave labour vital to coffee and sugarcane plantations, the city started to receive large numbers of European immigrants and former slaves, attracted by the potential for paid work and between 1872 and 1890 the population doubled.

This demographic explosion caused a housing crisis which had existed since the mid-nineteenth century, and precarious housing settlements began to emerge atop the city's hills: these settlements would later come to be called 'favelas,' now famous worldwide due to their characteristic look and their important cultural contributions such as the musical genre 'samba' and the development of the spectacular carnival teams that parade every year in the city.

By 1890 about one million people lived in the city, with about a quarter being immigrants - this in addition to former slaves from coffee and sugar plantations freed in 1888 by a decree of princess Isabel.