Nickelodeon Theaters were the first film theaters. Before Nickelodeons, films were showed in places as a “peep show” arrangements or in Vaudeville theaters as a means to chase customers out at the end of the show. Some showings in the early days were shown within empty stores, or stores that had closed for the day.

Nickelodeons drastically altered film exhibition practices and the leisure-time habits of a large segment of the American public. Although they were characterized by continuous performances of a selection of short films, added attractions such as illustrated songs were sometimes an important feature. Regarded as disreputable and dangerous by some civic groups and municipal agencies, crude, ill-ventilated nickelodeons with hard wooden seats were outmoded as longer films became common and larger, more comfortably furnished motion-picture theaters were built, a trend that culminated in the lavish "movie palaces" of the 1920s.

Film historian Charles Musser wrote: "It is not too much to say that modern cinema began with the nickelodeons."

The earliest films had been shown in "peep show" machines or projected in vaudeville theaters as one of the otherwise live acts. Nickelodeons drastically altered film exhibition practices and the leisure-time habits of a large segment of the American public. Although they were characterized by continuous performances of a selection of short films, added attractions such as illustrated songs were sometimes an important feature. Regarded as disreputable and dangerous by some civic groups and municipal agencies, crude, ill-ventilated nickelodeons with hard wooden seats were outmoded as longer films became common and larger, more comfortably furnished motion-picture theaters were built, a trend that culminated in the lavish "movie palaces" of the 1920s.
The name "Nickelodeon" was first used in 1888 by Colonel William Austin for his Austin's Nickelodeon, a dime museum located in Boston, Massachusetts.

The term was popularized by Harry Davis and John P. Harris. On June 19, 1905, they opened a small storefront theater with the name on Smithfield Street in Pittsburgh, Pennsylvania. Although it was not the first theater to show films, a 1919 news article claimed that it was the first theater in the world "devoted exclusively to exhibition of moving picture spectacles".

Davis and Harris found such great success with their operation that their concept of a five-cent theater showing movies continuously was soon imitated by hundreds of ambitious entrepreneurs, as was the name of the theater itself. Statistics at the time show that the number of nickelodeons in the United States doubled between 1907 and 1908 to around 8,000, and it was estimated that by 1910 as many as 26 million Americans visited these theaters weekly.

In 1905, William Fox started his first nickelodeon in Brooklyn.  He owned numerous theaters in New York and New Jersey.

In 1906, Carl Laemmle opened his first nickelodeon, The White Front on Milwaukee Avenue (Chicago) and a second one, The Family Theatre soon after.

In 1907, Louis B. Mayer renovated the Gem Theater in Haverhill, Massachusetts, converting it into a nickelodeon, which he opened as the Orpheum Theater, announcing that it would be "the home of refined entertainment devoted to Miles Brothers moving pictures and illustrated songs".  Other well-known nickelodeon owners were the Skouras Brothers of St. Louis.
Nickelodeons radically changed the modes of distribution and the types of films being made. Around 1903, longer multi-shot films became more prevalent, and this shift brought about important innovations in the distribution of films with the establishment of film exchanges.  Film exchanges would buy films from manufacturers and then rent them out to exhibitors. With a steady supply of different films, exhibitors finally had the possibility to open venues, where films were the central attraction. They did not have to worry about finding new audiences because the same audience would return again and again to watch different films. Exhibition practices greatly varied and programs lasted anywhere from ten minutes to an hour and a half or more in length. Often, programs ran continuously and patrons would join a program already in progress when they arrived and stay as long as they liked. While some nickelodeons only showed films, others offered shows that combined films with vaudeville acts or illustrated songs.

The desirability of longer films, which enabled nickelodeons to grow as they would, was the result of many factors. Economic competition between film production companies put pressure on them to create more elaborate, and often longer, films, to differentiate one film from another.
Longer films were also more attractive, as the price paid by exhibitors depended on a film's length and the longer a film, the more profit there was to be made. Some exhibitors found longer films more desirable since it made programming easier, faster, and possibly cheaper, as they no longer had to organize their own programs by editing together a variety of short films. Directors had a great desire to make longer films, because it meant greater artistic innovation as they tried to find new ways to engage audiences. The popularity of longer films also meant an increase in production of fictional films as actualities decreased. One of the possible reasons for this shift is that fiction films were often easier to plan and cheaper to film than actualities, which were subject to various location-related difficulties. Fiction films quickly became standardized, and the popularity of longer films meant they outperformed actualities, which were usually short.
Though strong throughout the years from 1905 to 1913, nickelodeons became victims of their own success as attendance grew rapidly, necessitating larger auditoriums. Nickelodeons further declined with the advent of the feature film, and as cities grew and industry consolidation led to larger, more comfortable, better-appointed movie theaters. Longer films caused ticket prices to double from five cents to ten cents.[citation needed] Although their heyday was relatively brief, nickelodeons played an important part in creating a specialized spectator, "the moviegoer", who could now integrate going to the movies into their life in a way that was impossible before. Miriam Hansen has noted that the term "spectator" had become common by 1910.

The nickelodeon explosion also increased the demand for new films, as thousands of theaters needed new product. The growth of longer films, which nickelodeons played a large part in stimulating, also led to the development of intertitles, which appeared in 1903 and helped make actions and scenes clearer as storylines became more complicated. A side-effect of this change was that it minimized the role of exhibitors, since they no longer had the editorial control of organizing single-shot films into programs, and now their narrative responsibility (some exhibitors would talk and help explain narratives as they unfolded) was also minimized by this "internal narration" in the film.>

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