From wikipedia:
Osteopathy was founded by Dr. Andrew Taylor Still, who was born in 1828 in Virginia...Dr Still had been employed as an army doctor during the American Civil War on the abolitionist side, the horrors of battle field injury and the subsequent death of his wife and several children from infectious diseases left him totally disillusioned with the practice of medicine. He had previously trained as an engineer and the achievements of civil engineering at that time, the great rail roads crossing the American continent were in contrast to the state of medicine. This no doubt prompted his enquiry into viewing the body from an engineering perspective. Still approached the study of the human body as one would approach the study of a machine. In the intervening century some of the philosophies developed by Still have been found wanting, others have persisted and developed. The evidence base for osteopathic manipulation is poor but improving, as an area of research it is unattractive to mainstream medical funding bodies/drug companies.
Over time he and his followers developed a series of specialized physical treatments, for which he coined the name Osteopathy. Dr. Still founded the American School of Osteopathy (now the Kirksville College of Osteopathic Medicine) in Kirksville, Missouri, for the teaching of osteopathy, on May 10, 1892. Kirksville was one of few places where he wasn't figuratively "chased out of town" by other doctors. While the state of Missouri was willing to grant him a charter for the awarding of the M.D. degree, he remained unhappy with the practices of his peers and chose instead to grant his own D.O. degree.
In the late 1800s Still believed that diseases were caused when bones moved out of place, and disrupted the flow of blood, or the flow of nervous impulses; he therefore concluded that one could cure diseases by manipulating bones to restore the supposedly interrupted flow. His critics point out that he never ran any controlled experiments to test his hypothesis. He wrote in his autobiography that he could
"shake a child and stop scarlet fever, croup, diphtheria, and cure whooping cough in three days by a wring of its neck." (Andrew Taylor Still, Autobiography, New York, 1972, Arno Press)
Still questioned the drug practices of his day and regarded surgery as a last resort. As medical science developed, osteopathy gradually incorporated all its theories and practices:
"Today, except for additional emphasis on musculoskeletal diagnosis and treatment, the scope of osteopathy is very similar to that of allopathic medicine. The percentage of practitioners who use osteopathic manipulative treatment (OMT) and the extent to which they use it have been falling steadily." (Source: Dubious Aspects of Osteopathy, Stephen Barrett)