According to the traditional account, the original flag was made in June 1776, when a small committee – including George Washington, Robert Morris and relative George Ross – visited Betsy and discussed the need for a new American flag. Betsy accepted the job to manufacture the flag, altering the committee's design by replacing the six-pointed stars with five-pointed stars.

The flag is named after American general and politician Christopher Gadsden (1724–1805), who designed it in 1775 during the American Revolution. It was used by the Continental Marines as an early motto flag, along with the Moultrie flag.