On the cold night of January 10, 1899, students of Illinois Wesleyan University, in the small Midwestern town of Bloomington, had just returned from the Christmas holidays when Joseph L. Settles went to the room occupied by James C. McNutt and Clarence A. Mayer at 504 East Locust Street to discuss the organization of a new society on campus. Joined immediately by Owen I. Truitt and C. Roy Atkinson, these five students created the first set of regulations for the Knights of Classic Lore, a society whose avowed purpose was "to aid college men in mental, moral, and social development."

There were two fraternities already in existence at Illinois Wesleyan in 1899, both with more than 50 chapters nationally. Phi Gamma Delta had been established in 1866, while Sigma Chi had begun there in 1883. In addition, two other national fraternities, Phi Delta Theta and Delta Tau Delta, had inactive chapters at Illinois Wesleyan.

The Founders of the Knights of Classic Lore desired an organization different from those represented by the existing fraternities. Their desire was to establish a fraternity in which the primary requisites for membership would be the personal worth and character of the individual rather than the wealth he possessed, the honors or titles he could display, or the rank he maintained on the social ladder. The Founders of the KCL had little regard for many of the common characteristics of fraternities at that time, including their usual snobbery and disdain for persons outside of a fraternity.

It was not long after their recognition on campus that the Knights of Classic Lore were approached by some alumni of the Illinois Epsilon chapter of Phi Delta Theta, whose charter had been surrendered in 1897. The Phi Delt alumni saw in this new group an opportunity for the restoration of its charter, and interested themselves in converting it into a strong local fraternity. Through the persuasion and effort of Richard Henry Little, for columnist on the Chicago Tribune and one of the most prominent Phi Delt alumni, the Knights presented a petition to the Phi Delta Theta national organization at its convention in New York in 1902. The petition was rejected.

In hopes that their organization might be more attractive to Phi Delta Theta, it was decided that a Greek letter name should be adopted. The name "Knights of Classic Lore" was therefore abandoned and the Greek letters Tau Kappa Epsilon selected. As a further step, a fraternity house was rented. This was the first fraternity house at Illinois Wesleyan, although Phi Gamma Delta and Sigma Chi had both been in existence on campus for many years. The Wilder Mansion, former home of President Wilder of the University, became the first TKE house.