SHAO was formally established in 1962 following the amalgamation of the former Xujiahui (originally spelt Zi-Ka-Wei) and Sheshan (Z?-S?) observatories, which were founded by the French Mission Catholique in 1872 and 1900 respectively. Both came under Chinese government jurisdiction in 1950.
A 40cm double astrograph was built in 1900 on top of Sheshan mountain, which was the largest telescope in East Asia at that time. It is one of a few telescopes in the world that observed Halley's comet both in 1910 and 1986.
From 1951 to 1981 SHAO provided the clock-time standard for all China. A new observatory was then established in ShanXi under the auspices of SHAO, which has provided this service since 1981.
The first Chinese-made atomic clock was built in SHAO in 1972, and since then several hydrogen masers made in SHAO have been used at VLBI stations. In the 1980s, SHAO built a 25m radio telescope for use as station in the Very Long Baseline Interferometery (VLBI) network; a 1.56m optical telescope; and a 60cm satellite laser-ranging system. These three facilities are still in frequent use today.
In 1999, SHAO moved to a new 19-storey building in the Xujiahui district of central Shanghai.