The article’s aim is to analyse the development of the New Institutional Economics (NIE) from the point of view of evolution of the notions of institution and transaction costs, as well as methods of analysing their mutual interactions. Oliver E. Williamson’s transaction costs economics, which laid down the foundations of NIE, is to be presented first, followed by a review of Douglass North’s writings. This review will distinguish two periods: North I, in which his transaction costs analysis takes place within the framework of assumptions of the neoclassical economics, and North II, when some of these assumptions are rejected. The next step will involve a comparison of North’s and Williamson’s concepts of transaction costs. As a conclusion, an attempt to integrate those two transaction costs economics will be presented.