This was a study of the development of an objective funding method for public higher education institutions in Tennessee. The review covers the history of higher education funding from the early 1800s through the beginning of the twenty-first century with emphasis on the early 1960s through the year 2000. The study describes and analyzes the efforts made in Tennessee to provide adequate and equitable funding to public higher education institutions. Minutes of meetings of the Tennessee Higher Education Commission, reports on studies commissioned by state officials, accountability reports prepared by the Tennessee Higher Education Commission, the Tennessee Board of Regents and the University of Tennessee, and official budget-related documents and annual financial reports of the colleges and universities were examined for this study. Fifteen personal interviews were conducted with individuals identified on the basis of their longevity in Tennessee higher education and/or the timeframe of their service, and because they represented a cross-section of state officials, officials of governing boards, and university and community college officials. A financial analysis of state appropriations, revenues and expenditures is included for 1993 through 2002. This study found that Tennessee’s formula contains most of the elements that have been brought forward in the literature over the years as indications of a good formula, and it addresses several of the disadvantages of formula funding. The funding formula has moved Tennessee higher education institutions closer to “equitable and fair” funding among the institutions since its application in the early 1970s. A provision for performance funding and implementation of Centers of Excellence and Centers of Emphasis programs addressed quality issues relative to funding. However, use of a formula has not solved the problem of insufficient funding. The complexity of college and university financial reporting has contributed to misunderstandings and distrust between higher education and state officials. This study combines lessons from the past with recommendations for future modifications to the funding formula used by Tennessee’s higher education institutions.