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The band was formed in 1969 by Mark Farner and Don Brewer from Terry Knight and the Pack and Mel Schacher from Question Mark & the Mysterians; Terry Knight soon became the band's manager. Knight named the band after the Grand Trunk Western Railroad, a well-known rail line in Michigan. First achieving recognition at the 1969 Atlanta Pop Festival, the band was signed by Capitol Records. After a raucous, well-received set on the first day of the festival, Grand Funk Railroad was asked back to play two additional days. Patterned after hard rock power trios such as Cream, Grand Funk Railroad, with Terry Knight's marketing savvy, developed its own popular style. In 1970, they sold more albums than any other American band and became a major concert attraction. In 1969, the band released its first album titled On Time, which sold over one million copies, and was awarded a gold record in 1970. During the same year, a second album, Grand Funk (aka "The Red Album"), was awarded gold status. The hit single "I'm Your Captain (Closer to Home)", from the album Closer to Home, was also released in 1970 and was considered stylistically representative of Terry Knight and the Pack's recordings. The band spent $100,000 on a New York Times Square billboard to advertise Closer to Home. By 1971, Grand Funk broke The Beatles' Shea Stadium attendance record by selling out in just 72 hours.

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Despite critical pans and a lack of airplay, the group's first six albums (five studio releases and one live album) were quite successful. In 1970, Knight launched an intensive advertising campaign to promote the album Closer To Home. That album was certified multi-platinum despite a lack of critical approval. Following Closer To Home, Live Album was also released in 1970, and was another gold disc recipient. Survival and E Pluribus Funk were both released in 1971. E Pluribus Funk celebrated the Shea Stadium show with a die-cut depiction of the stadium on the album cover's reverse.