Because the university had not been incorporated separately from Stanford's other properties, its assets and income were tied up in probate proceedings. To compound the problem, the federal government filed suit against Leland Stanford's estate for his presumed share of construction loans originally made to the Central Pacific Railroad. Jane Stanford refused to close the university and funded faculty salaries and university operations with an allocation made to her from the probate judge. By 1898, the financial problems were resolved.

During this period, called "Stanford's second stone age" by President Jordan, the Outer Quad buildings, Memorial Arch, Memorial Church, the Chemistry building, the new Library, the Gymnasium, and extensive additions to the Museum were built. This focus on building limited the resources available for academic programs and the faculty looked forward to the end of construction and a greater financial commitment to academic pursuits.

The earthquake struck when many local residents were asleep or still at home, and initial reports centered on damage to campus housing. Word spread quickly of major destruction at Encina Hall, the men's dormitory. Young men in various states of dress streamed from the building and worked to free those trapped by fallen debris. Students and faculty members living in other areas of campus took quick stock of their own circumstances, returned briefly to their residences to get proper clothing, and set off to see the destruction elsewhere on campus, and help where they could.

A survey of campus began as soon as faculty and students were dressed and had attended to those in urgent need. The Main Quad and adjacent buildings were the first destination for many, and the sight was overwhelming. The second of the two deaths that day occurred at the university’s Power House, located just to the south of the Quad. Otto Gerdes, a staff member, realized the danger of fire and rushed back into the building to turn off the power and steam. He was crushed as he exited, when the upper section of the one-hundred-foot smokestack crumbled.

Deep piles of rubble lay around all areas of the Quad, and keystones dangled out of the tops of arches. The entire south outer arcade fell and sections of walls in numerous buildings had collapsed. Crowds, gathered in front of Memorial Church and the Memorial Arch, were awestruck by the damage. Students went to the campus telegraph office to cable their parents, but were told there were no lines open in any direction. Cables sent to the university by parents and friends went undelivered for many days.

The hours following the quake were filled with fears of aftershocks. Everyone was warned to keep clear of buildings, and one report sent students into the foothills to await another major shock. Work was undertaken to erect tents or other makeshift accommodations on lawns and tennis courts. As the day wore on, security concerns grew, and students were recruited to act as guards at the Quad and at the dormitories for the night. As the Stanford community attempted to grapple with the damage on campus and President Jordan announced the university would close for the rest of the term, students and faculty began to consider their next step.

Under direction from the Board of Trustees, the commission focused their efforts on the two dormitories, Roble and Encina, and Outer Quad buildings, including the Assembly Hall, Thomas Welton Stanford Library, and Physics corner. Contracts were signed and construction began in early July, barely two months before students were to return. A labor strike in late July threatened further delays, but sufficient repairs were completed to allow the university to reopen for the fall semester.

The Class of 1906 was dubbed the “Calamity Class” after suffering tragedies in three of their four spring semesters (typhoid epidemic, 1903; Mrs. Stanford’s death, 1905; and the earthquake, 1906). They celebrated their graduation on September 15, 1906, with University of California President Benjamin Ide Wheeler as the speaker. It was the first commencement where students wore caps and gowns.