Prior to 1820 no institution existed in Salem that fulfilled the purpose of a dispensary. On January 10, 1820, a meeting of "gentlemen" was held at the Essex Coffee House, chaired by B. W. Crowninshield for the purpose of forming a dispensary, "and recommending the institution to the wealthy and charitably disposed inhabitants of the place." At this meeting a committee was chosen, Rev. Thomas Carlile, Dr. Able L. Pierson and Mr. John W. Treadwell to make suitable arrangements toward accomplishing the purpose. At the adjournment on February 15, 1820 the committee report was adopted and the members elected Dr. Edward A. Holyoke president, John W. Treadwell, Joseph Howard, Rev. Thomas Carlile, and Abel Lawrence, Jr. managers, and John G. King, Esq., secretary.

The town was divided into two districts: the Western District included all persons living west of Washington and Court Streets, the Eastern District, those persons living to the east of those streets. Each district was to have a physician and an apothecary to service applicants. To receive services each subscriber could furnish to any person he deemed deserving a ticket entitling the holder to all the benefits of the institution. In 1831, the Salem Dispensary petitioned for formal incorporation by the General Court. It was enacted and approved by the governor on February 3, 1831.

By 1839, abuses had crept into the system with many persons availing themselves of benefits who could pay, in part, if not in full to their medical attendant. This and a smaller subscription list prompted changes in how services would be funded. The rules were changed such that to avail themselves of services, each family was required to pay three dollars a year to receive benefits. Families who could not afford the fee were given free tickets as in the past. With the fees also came a change in the way services were delivered. The managers gave over to the executive committee the control to determine who could get free services. The City allowed the Dispensary an office at Old Town Hall in 1860 where a clerk would be in attendance afternoons from three to five daily, except Sundays, where services could be applied for.

All funds collected would be applied to services and expenses, excess expenses to be borne by the subscribers. In the event of any excess funds, the money would be shared among the physicians who, up to this time had received no payment for their services.

At the annual meeting on January 20, 1875, the managers voted to dissolve the Dispensary and any funds remaining to go to Salem Hospital, founded in 1873. Pursuant to the vote of the managers the president petitioned the General Court to dissolve the Salem Dispensary, which was granted in 1876. The last treasurer's entry on January 22, 1877 notes that all the assets of the Dispensary had been transferred to Salem Hospital.