In 1881, the Board of Visitors appointed a committee to select a site for the observatory and the committee selected the top of Mt. Jefferson later that year. After selecting the site, the committee began the search for the observatory's new director. With McCormick's supervision, they selected Ormond Stone from the Cincinnati Observatory. Ormond Stone began as a professor at UVA in 1882 and began astronomical work before the observatory was finished. The first officially recorded observation was a transit of Venus observed by Ormond Stone and Prof. Francis Smith in December 1882.

Construction began on both the observatory building and the director's house in 1882. The dome was constructed by the Warner and Swasey Company from Cleveland, Ohio, and was the first of its kind. Worcester Warner (seen left) and Ambrose Swasey (seen right) designed the dome with its three six-foot apertures and circular track system that allowed for easy turning of the dome and they applied for a patent on their design October 19, 1883, during construction of the McCormick Observatory. In 1884, Scientific American declared "if this ease of motion continues as the dome grows old, it is certainly a remarkable piece of engineering work," a tribute to the ingenuity of Warner and Swasey, given the ease with which the dome revolves 115 years later.

The Wilson Brothers of Philadelphia (noted for their design for the Reading Terminal a decade later) built the remainder of the observatory, completed with the telescope installed in 1884. The glass for the lenses was cast by Mantois and Sons of France. It was then shipped to Alvan Clark & Sons of Cambridgeport, Massachusetts, who ground the lenses. The telescope was sent to Charlottesville by railway, then was disassembled and carefully packed up to be carried up Mt. Jefferson on horse-drawn wagons.
 

Scientific American in 1884 described the telescope as essentially like the one at the United States Naval Observatory in Washington, D. C. with a driving clock resembling the one at Princeton University. The finished observatory consisted of the dome and computing rooms holding the library, clocks, chronographs, seismographs, etc., and a room that served as a bedroom. The donation of additional funds later provided for a house for the director and a small house for the janitor, both on the grounds of the observatory.

Construction of the director's house, now named Alden House after the Observatory's third director Harold Alden, began in 1882 along with the observatory. Leander McCormick provided the additional funds to erect the director's house after the endowment was all spent on the observatory. Director Ormond Stone and his family lived in a four-room frame cottage until the brick residence was finished.

Charlottesville architect and contractor, George W. Spooner built the director's residence. There is evidence that Spooner's work was loosely based on designs drafted by Wilson Brothers of Philadelphia, who had also built the observatory. After a lengthy debate and a series of heated correspondences between Wilson Brothers and Stone, they turned down the director's house project. The house was completed and ready for habitation in the fall of 1883.