The Holy City was once known as Yed Shama, a metropolis and civilization that had isolated itself from the world beyond its borders. When the First Faloran Empire conquered it, it became the crossroads of the Empire, and thereby grew tremendously in an incredibly short period of time. Yed Shama became the unofifcial capital of the Empire by the time of Radiance's seizure of power and the birth of the Dominion.
When civil war broke out due to Radiance's despotic reign, it was the Arbiter who stepped forward to declare Common Law and restore peace. As part of this peace, Yed Shama became the new capital of the Dominion, overseen by the Arbiter himself. Due to the ancient spells of the self-sufficient people of Yed Shama, and the desire by the Archons to have a massive reservoir of manpower to feed themselves via Sparks and Pacts, Yed Shama - now the Holy City, grew exponentially, becoming truly gigantic in scale. The Sanctum at its heart was surrounded by wasteland after the land was farmed and desertified , and the city spread outwards from the centre.
Shortly before the Mockinglord was imprisoned, the Arbiter turned the land around the Sanctum into glass.
After the Arbiter died, the Mockinglord was set free, and he wreaked supreme havoc in the Holy City. Without the Wardens to maintain the peace, the metropolis fell into anarchy.