However, when California's Military Governor, Colonel Richard B. Mason reported to President Polk, that the camp was hauling out thousands of dollars worth of gold, the settlement boomed and soon became a central supply and transportation center for the area.

Like other mining camps and Old West towns filled with men, it soon took on a hell-raising reputation. Seeing opportunity, the camp not only filled with miners, but also with murderers, road-agents, fugitives, deserters and thieves, intent on making their wealth not in back-breaking labor, but by taking the gold at knife or gunpoint. By the end of 1848 crime had become a serious issue in the mines. California was then a province of Mexico occupied by American forces and under martial law declared by California's military governor. There were no laws, police, jails, courts, or a prison.

American miners played a major role in establishing American frontier government based in democracy and American jurisprudence in the mining regions. On January 22, 1849 the first miner’s court was convened in California at Old Dry Diggings after five men were arrested in the act of armed robbery. Three of the men arrested were identified as having committed a previous robbery and attempted murder.

Though miner’s courts were established to settle claim disputes among the miners they also heard criminal cases usually after some outrage had occurred. The Old Dry Diggings case resulted in swift punishment for the outlaws. The two charged with armed robbery received a sentence of 39 lashes each and banishment from the mines. The three convicted for the prior robbery and attempted murder were hung. Often hanged at a giant oak tree on the town’s main street, the camp was renamed "Hangtown” in 1849.

Though the camp was primarily populated by men, many brought along their families and by the next year the temperance league and a few local churches began to request that a friendlier name be bestowed upon the town. However, it would be several years later before an official name change would take place. By 1854, Hangtown had become the third largest city in California, surpassed only by San Francisco and Sacramento, and when it was incorporated that year, the name was changed to Placerville. The same year, an election was held to try to wrestle the county seat away from Coloma, but Placerville was not the only competitor. Three other communities joined in the running and none could muster enough votes to upset Coloma.
 

As millions of dollars in gold were taken from the many mines of the area, Placerville received its first railroad in 1856, providing a welcome relief to the miners who formerly were forced to haul the ore in wagons over muddy and dusty trails. However, that very same year, the burgeoning city suffered its first major loss when it was nearly destroyed by fire on July 6th.