In 1769, at the insistence of the proprietors, separate government for St. John's Island, renamed Prince Edward Island in 1799, was established. Walter Patterson was appointed Governor of Prince Edward Island in 1769, but did not arrive until 1770. The position was reduced to Lieutenant Governor in 1784. Patterson was instructed to administer oaths, call a Council, summon a general Assembly, make laws for Prince Edward Island with the consent of the Council and Assembly, and to send copies of the acts and accounts of proceedings of the affairs of the government to Colonial Office in London. The Lieutenant Governor had the power to disallow legislation, and could adjourn, prorogue and dissolve the Assembly at his own discretion. With the advice of the Council, he was able to establish courts of judicature, appoint judges, justices of the peace, sheriffs and other officers of justice. He held the power to pardon criminals, except in cases of murder or treason. The Governor was the keeper of the Great Seal of the Colony, made ecclesiastical appointments, and was responsible for military matters. Public money could be issued on Governor's warrant only, on the advice of the Council. The Governor was also responsible for the establishment of markets, ports and other commercial conveniences. The Lieutenant Governor was the Chancellor of the colony and presided over the Court of Chancery, acting in this capacity with the advice of the Chief Justice and the Attorney General. The Chancellor heard some proceedings and appeals from the Master of the Rolls.

The personal attributes of the incumbent of the office of Lieutenant Governor had some bearing on the constitutional development of P.E.I. Personal influence with Colonial Office was probably the largest contributing factor in obtaining the commission of Governor or Lieutenant Governor of a British colony. As such, not all Governors were particularly skilled in administrative procedures, which led to tensions in Prince Edward Island's small political community.

The early governors were appointed during pleasure and therefore, each spent several years in office. In 1830, the Secretary of State sent a circular which indicated that future appointments to the office of Lieutenant Governor would be for six years. George Dundas was the only Lieutenant Governor to serve two terms, after Colonial Office was successfully petitioned for his re-appointment.

After responsible government in 1851, the Lieutenant Governors had some difficulty in accepting their new role in political process. Most still were more directly involved in administrative matters than the position necessitated. The Imperial government continued to pay the salary of the Lieutenant Governor, while the local government was expected to contribute also. Prince Edward Island's council, however, did not contribute until an act was passed in 1869 to pay the Lieutenant Governor 1400 pounds sterling per year (32 Vic., Cap.2). In 1872 this amount was increased to 7000 pounds.

After joining Confederation in 1873, the role of the Lieutenant Governor was clearly defined by the British North America Act. The Lieutenant Governor is the head of the government of Prince Edward Island and the representative of the Crown and the Governor-General in the province. Appointed for a five year term by the Governor-General in Council, the Lieutenant Governor receives his or her instructions from the federal government but is advised by the provincial government's Ministers and Executive Council. Most of the tasks of the Lieutenant Governor are initiated by the Premier such as the selection of Ministers, and the summoning, proroguing and dissolving of the Legislature. The Lieutenant Governor must, as representative of the Governor-General, give royal assent to bills passed in the Legislature and forward copies to the Governor- General. The Lieutenant Governor has the power to reserve decision on the passing of legislative bills or refuse assent subject to the provisions of the British North America Act.

The office of Lieutenant Governor also has a formal social function as head of the province. Political allegiance has been the most important factor influencing appointments to this position. The appointment is made by the federal government, in consultation with the Premier and federal members of Parliament. Almost all of Prince Edward Island's Lieutenant Governors held a political office, prior to their appointment to the office, although those that had not were influential in political parties and community or business affairs. Since Confederation, no Lieutenant Governor of Prince Edward Island has been appointed to a second term. P.E.I. has had a custom of alternating appointments between Catholics and Protestants to avoid the appearance of favouritism. Until recently, the position of Lieutenant Governor was poorly paid. The incumbent was financially responsible for social events required by the post and the maintenance of Fanning Bank, the official residence for the Lieutenant Governor since 1834. Generally the Clerk of the Executive Council and Legislative Assembly is the liaison between the Cabinet and the Lieutenant Governor.