The name "Medicine Bow" is legendary and reputedly derives its origin from the Native American tribes that frequented the area, mainly the Arapaho and Cheyenne. Along the banks of the river, the Native Americans found excellent material for making their bows. To them, anything they found good for a purpose was called "good medicine." Thus, the Native Americans named the river flowing through the area the Medicine Bow River, and since the headwaters of the river originated in the mountains to the South, they were called the "Medicine Bow Mountains".

The area was first used by trappers and mountain men during the 1830's. In 1868, the Union Pacific Railroad was built through the area, and a pumping station was established on the river. A store and saloon were the beginning of the small village, which naturally was given the name "Medicine Bow." By the following year, Medicine Bow had become a major supply point and in the 1870's, the federal government operated a military post in Medicine Bow to protect the railroad an freight wagons from attack. A post office was built and in 1876, the first elementary school was established.

By the late 1870's and early 1880's, Medicine Bow had become the largest shipping point for range livestock on the Union Pacific line. Cattle were being brought for shipping from as far away as Idaho and Montana. An average of 2,000 head a day were being shipped. By the turn of the century, Medicine Bow was also a major shipping point for wool, averaging 1,000 tons a year.

In 1901, the U.P. Railroad was relocated from the Rock Creek route to its present location, and a depot was built in Medicine Bow. The original depot burned down July 24, 1913, and the present depot was erected in November, 1913.

In 1909, Medicine Bow was incorporated when the U.P. Railroad transferred ownership to the town.

In late 1913, the transcontinental "Lincoln Highway" passed right through Medicine Bow. In the 1930's it was paved, bringing tourism to the area.

In later years, Lumber, Uranium, Coal, Oil, and Natural Gas were found in the area which added to the prosperity of the region.