The GDR's Football Association, alngside the DTSB, had been looking at the performancesin East German football over the  previous months,and had found them to be insufficient. Sporting successes was supposed to demonstrate the superiority of the socialist system over the western one, especially so iin theworld's most popular sport, yet the clubs were found to be only playing at a lower European average.

A series of proposals was finally submitted by the DTSB "for the further development of football in the GDR." In the proposals attached to the minutes of the association's board meeting from 17 August 1965, it was stated that efforts "to reach a higher level corresponding to the standard of international top teams in some clubs" had not shown lasting success. "It is therefore urgently necessary to initiate measures that are capable of overcoming the existing deficiencies." In particular this regarded training within teams in the league'supper echelons. So it was decided that "special treatment, promotion, and support" should be provided in certain cases by allowing "the establishment of football clubs at large state-owned enterprises." 

They would be employed and paid, and their conditioning would be assured, along with the promise that "the necessary exemptions from work for training, competitions, and courses" with continued salary payments, should now be guaranteed by the "enterprises" leadership. .

These proposals, including specifically "the proposed measures for the establishment of football clubs" as well as "the introduction of a coaching license system," were confirmed by the secretariat of the Central Committee of the SED on 18 August 1965 – without which the measure planned would have proved impossible.

TSC Berlin, then playing in the second division, was among the 10 new clubs, planned as a football-only performance center in the industrial area of Oberschöneweide. "This will create," the Berliner Zeitung reported in December 1965, "even better conditions for improving the performance of the GDR's upper league and national teams, as well as for intensive youth development." 

TSC, under coach Werner Schwenzfeier, played their last competitive match on 9. January, 1966, a famous 1-1 draw in the cup aagainst 1. FC Magdeburg, already been founded in the previous December out of SC Magdeburg; Jürgen Stoppok equalized in the seventy-fifth minute. Magdeburg went throough following a  goalless extra time.

For the second half of the 1965/66 season, the Union players prepared almost immediately in a winter training camp in Thuringian Oberschönau. Part of this involved a friendly match against Vorwärts Meiningen – a 3-1 loss on 19. January, and the last match ever match for the TSC first team. Günter "Jimmy" Hoge scored their last goal to establish the 1-0 lead in the 14th minute.

The coach and several players traveled to Berlin on 20. January, 1966, to join the approximately two hundred guests at the evening's event. They all knew that it would be about a new football club – the intended name, however, was known to only a few.

In its preparations, the founding committee had published a call the previous December through Berlin's newspapers and on the radio: "TSC open a competition to find the name and crest of the new football club," it said in Berliner Fußball, and later again, "Who can find the right name?" Some of the submitted proposals were listed in the paper for its readers: FC Spreeathen and 1. FC Berliner Bär as well as FSC – Fußball-Sportclub – Union Berlin. One said that this name refers "not only to the Berlin tradition of the name Union," but it had an added significance. "'Union' or 'association' today refers to the international workers' movement," which of course had a certain resonance.

The BZ pointed out that "only designs or sketches in colour" needed to be submitted for the emblem. The competition for the capital's football fans was also advertised in the Berliner Zeitung with the prospect of  "prizes of 500, 250, and 100 marks as well as ten season tickets" as prizes. There was unanimity, according to Berliner Fußball, regarding the future club colours, however. "They should remain red and white, the colours of our city."

Meanwhile, on 11. January, the secretariat of the DTSB confirmed the composition of the intended club leadership. Listed were Werner Otto, the general director of the industrial umbrella organization for high-voltage devices and cables as chairman, along with Georg Pohler, the director of the Oberspree cable works, and Hans Modrow, SED party chief in East Berlin Köpenick, as his deputies. On 18. January, the committee confirmed the new name – 1. FC Union Berlin.

This had been suggested by the majority of competition participants, from 286 submissions with 475 suggestions. Neither FC Spreeathen, 1. FC Berliner Bär, BFC 66, BFC Rot-Weiß nor FC Berolina came close. Nor did FC dufte Jungen or BFC Rakete. Among proposals for the badge were the Hauptmann of Köpenick and, due to their location in the Wuhlheide, deer antlers – none of the numerous designs, however, convinced the jurors.

On 20. January 1966, a sign with the name written on it hung from the ceiling of the main hall of the club house, seen by  its guests for the first time that evening as the invitation also only bore the DTSB emblem. The agenda included the welcome, a formal speech, a discussion, the appointment of the club management, and a closing word. One of the speeches was given by Paul Verner, a member of the SED Political Bureau of the Central Committee of the SED [the ruling Socialist Unity Party] and First Secretary of the SED District Leadership Berlin – Berlin's leading and most important SED politician.

He had played a crucial role beforehand in ensuring that TSC would be part of the club. His hope, as quoted by Berliner Fußball, was that Union “would soon be found not just in the league, but in the Oberliga.” Paul Fettback, now responsible for daily organisational matters as club secretary, pointed out the intended contact with the spectators through joint events, and emphasised that it would be a priority for the club house to always “have a sociable atmosphere after home games so that our supporters feel comfortable there together with the players."

Among the players who traveled from the training camp was captain Ulrich Prüfke, quoted by Berliner Fußball as saying that the players were ready to “take all opportunities to enhance the reputation of 1. FC Union Berlin.” To fiinish things up, the publication said “the chairman of the DTSB District Board Berlin, Heinz Busch, declared the new club as founded with the cry ‘Long live 1. FC Union Berlin!’”

The board included Otto, already confirmed for appointment by the sports association as chairman, and Georg Pohler as one of his deputies. In this position, Hans Wagner, a secretary of the SED District Leadership Berlin, was also included. The social scientist Fettback was part of the body, as was Günter Mielis as his deputy – the teacher had earned a good reputation as a youth coach. The DTSB also appointed Hans Modrow, the Köpenick SED chairman, who was also a candidate from the SED Central Committee among the most important Berlin party politicians, as board members. Together with them were Otfried Steger, the Minister for Electrical Engineering and Electronics of the GDR, Fritz Stahl, responsible for TSC's economy and finance, now serving as the administrative and economic manager at Union, Karl Hexamer, the Köpenicker area manager of the Berlin sports facilities management as chairman of the Technical Commission, the previously successful coach Werner Schwenzfeier as head coach, Günter Rachholz, head of the vocational school of the transformer factory in Oberschöneweide and former player as well as Gerhard Wötzel as head of the youth department, Peter Griese became chairman of the Audit Commission, and journalist Bernhard Braunert was responsible for culture and education as well as public relations. Representatives of the trade union had no responsibilities on the board. For the event, the BZ noted in its evening report that a “deliberately modest framework had been chosen.”

In the handover protocol from TSC to 1. FC Union Berlin, a DDR-Liga men’s first team, second team, two youth teams, two junior teams, four student teams, and two children’s and boys’ teams were listed. The first team consisted of Werner Basel, Joachim “Jochen” Ernst, Klaus “Kalle” Korn, Helmut Kalbe, Peter Blüher, Ulrich Prüfke, Ralf Quest, Wolfgang “Ate” Wruck, Günter “Jimmy” Hoge, Jürgen “Fritze” Belger, Wolfgang “Atze” Weißenborn, Meinhard Uentz, Harald “Hajo” Betke, Jürgen Stoppok, Günther Stange, Heinz “Kaule” Kaulmann, Detlef Dollhardt, and Peter Halupczok. The officials of both clubs signed the document on January 28, 1966. 

At that time, the team had already returned to Berlin from their training camp in Oberschönau after 14 days on January 24, 1966. Two after the founding in Berlin, the players first appeared as Unioners on January 22, 1966. In a short-notice friendly, they faced Motor Oberschönau, a fourth-division team. Due to heavy snow, the match was cancelled, but the appointed referee was not informed, going on to see posters up which announced a “joint training” that would tak the formof a game, during which “instructions and corrections would be given, and substitutes could be made as desired.” No admission fee was charged, the players wore tracksuits and bobble hats, and Union won 5-3 (though the names of the scorers were not reported.) 

The match had become a case for the FA's legal committee due to the referee's report. They clarified that “all matches played between football teams from different communities are to be considered as friendly matches.” After a hearing on March 11, 1966, in Erfurt, the committee stated in its reasoning for the judgment on March 12, 1966, that, indeed, it was not a training session, but, even with the changes in conditions, a friendly in the sense of the competition regulations. Thus, the committee fined 1. FC Union Berlin 100 marks.

During their preparation for the second half of the season, the Unioners played a friendly against FC Vorwärts Berlin on February 5, 1966. In the Friedrich-Ludwig-Jahn-Sportpark, 1,000 spectators experienced the first  1. FC Union Berlin game played under floodlights.After Ralf Quest had given his team the lead in the 65th minute, it finished in a 1-1 draw.

On February 12, 1966, readersof the Berliner Zeitung  saw the nw 1. FC Union badge for the first time  (on page seven). After the competition in January had produced a name but no usable visual design, the club board commissioned the Berlin graphic designer Peter Gribat to create the design. He submitted several proposals, one of which which became the emblem that remains nearly unchanged to this day. The club also modified the amount of the prizes offered to those who had submitted ideas. "From those who proposed the name '1. FC Union Berlin'," said Berliner Fußball on 14. February, "three prizes were drawn. Erich Ellerau from Berlin-Pankow in first place received 300 Marks, Dieter Schönberg from Berlin-Köpenick received 200 Marks, and Michael Waller from Potsdam received 100 Marks."

Union, led by captain Ulrich Prüfke, had their first ever competitive match when they took on Motor Köpenick on 16. February, 1966. The 1-1 draw against their neighbors was witnessed by 1,500 spectators. Wolfgang "Ate" Wruck equalized in the 49th minute, scoring the first competitive goal for the new 1. FC Union Berlin. 

Back on the founding-evening of 20.January, 1966, Ulrich Prüfke addressed the newly foundedclub's goal on the pitch. "We want to achieve promotion to the Oberliga at the earliest possible date!," he said. Then, on 15. May, 1966, they realised their plan. A 3-1 win, away at Vorwärts Rostock on the penultimate match day secured first place in the Northern division's league table.