Arkham Asylum was an ailing mental hospital and prison located outside of Gotham City. Once a well regarded institute for the mentally ill, the building fell into disrepair, due to the actions of Thomas Wayne, Hamilton Hill and Carmine Falcone. Arkham would become one of the largest parts in the Children of Arkham's plans, particularly against Bruce Wayne/Batman.
Founded during the year 1921, Arkham Asylum was run by the Arkham family for many generations. However, around either the mid to late 1980s or early 1990s, the once state of the art mental hospital would become part of the operations of Thomas Wayne, Carmine Falcone, and Mayor Hamilton Hill. Together, the trio would commit innocent people who stood in their way to the asylum, using a psychoactive agent to induce psychosis. With this, they would commit hundreds of people to Arkham, clearing them to take over much of Gotham City.
Eventually, the current generation of the Arkham family would decide to blow the whistle on their activities, having either decided to no longer stand by or discovered the information themselves. However, Thomas would arrange their assassination to ensure they would not expose the truth, leading to them taking over the Asylum. After Thomas' death at the hands of a hitman, Hill would stop his activities, but asked Falcone to stockpile the chemical for future use.
Over the next twenty years, Arkham would fall deeper and deeper into disregard and mismanagement, with many of its inmates getting more dangerous and its staff seemingly becoming more disillusioned. Inmates escaping become a normal occurrence and the orderlies would be bribed regularly. Despite this, some staff, including Head of Psychiatry Dr. Joan Leland, would stay optimistic and try to help the inmates as much as they could. At some point, Bruce Wayne, the son of Thomas, and Harvey Dent, the District Attorney and Mayoral Candidate, would decide to replace the Asylum with a state of the art mental hospital. Backed by Wayne Enterprises board members, including Robert and Regina Zellerbach, the new mental hospital was approved by the city council.