The establishment of Gunnison in 1862 resulted from the resettlement and merging of two earlier communities, each built up in 1859 along the lower Sanpitch River in upper Gunnison Valley. A group of settlers from Sanpete County had started a village on the south bank of the river at Chalk Hill Point about two miles east of the eventual town. At about the same time, a group of colonists from Springville and other places formed a settlement about three miles west of Chalk Hill. They called the place Kearns Camp after their leader, Mormon Bishop H. H. Kearns. Simple houses were erected at each location, with the intention of creating permanent communities. The impetus for settlement in the area had come from Brigham Young after his tour from Manti to the Sevier Valley and the southern colonies in May 1850. During a return visit in 1862, Young saw the limitations of the swampy area, which was termed "too muddy for a hog's wallow"; he advised the people to move up to the bench area, where a new town was built.

The town was named in honor of government explorer Captain John Gunnison, who was killed with six of his men by Indians while in the Sevier Valley area in 1853. Edward Fox surveyed the townsite in rectangular eight-acre blocks and James Mellet erected the first house as the pioneers dismantled and carted their earlier structures to the new site in late 1862. They were now a long distance from water, so the first public task was to dig a ditch from the river to the bench-top town. Early settlement efforts were hampered by difficulties with Indians during the Black Hawk War. Although a few settlers died in skirmishes, an unexpected benefit occurred in April 1867 when some of the people evacuated from the Sevier County colonies relocated permanently to Gunnison.

Construction was facilitated after 1863 by the construction of a vertical "pit-saw" sawmill, followed soon after by a horse-powered circular sawmill. A blacksmith shop was started in 1867 by Lorentz Dastrup. Early structures were erected by stone mason Christ Tollestrup, adobe craftsmen Eric Larsen and Harmon Christensen, and carpenter William Christensen.

Concurrent with town building was the commencement of farming. A committee divided up the land, drew up rules, and distributed the land to settlers. The first irrigation system was improved and expanded throughout the valley. Irrigation companies were founded and dams, reservoirs, and canals were built.

The society of Mormon pioneers was formally organized with Joseph S. Horne being sent from Salt Lake City to serve as bishop in 1868. Young and progressive, he directed the creation of a cooperative store, the opening of a rock-salt mine, and the formation of the Farmers', Gardeners', and Foresters' Club. In 1876 Horne was acknowledged for his role in managing "the building of schools, meeting and mercantile and private houses, grist and sawmills, salt boilers, in improvement of roads, enlargement of farming lands, extension of planting of trees and other laudable pursuits of home industry."

Like that of the other villages in Sanpete County, Gunnison's survival has depended on sustaining an agrarian economy. In the nineteenth century, irrigation brought vegetable crops and sugar beets. The success of sugar as an export crop led to the construction of a sugar beet factory in the valley. Grain crops, alfalfa, and truck farming, together with dairy products, turkeys (for which there is a local processing plant), sheep, and especially beef cattle, have kept the city viable in the twentieth century.

With the coming of the railroad, Gunnison's fortunes prospered and the city's population more than doubled in the decade ending in 1900. As it grew, Gunnison developed as the commercial center of the valley, featuring flour and feed mills, a co-op store, general and specialty stores, and the Gunnison Valley Bank. Religious, civic, and educational facilities were built as the city expanded, including several impressive Mormon and Presbyterian structures in the mid-1880s, a dance hall in 1896, and a new city hall and rock school in 1899. The telegraph had arrived in 1882 and Gunnison officially became a town in 1893. The turn of the century brought the first telephone to town, and in 1910 a new water system was installed and the first power plant was built.

By 1921 Gunnison and the surrounding environs had grown sufficiently to build a separate high school, a one-story brick facility erected on the east side of Main Street between the south of town and nearby Centerfield. The second half of the twentieth century ushered in similar improvements, including a new state prison facility built north of town. Gunnison's population has increased gradually since 1970, reaching 1,298 in 1990.

Many of Gunnison's historic sites and buildings are gone now, but several important ones remain, including the 1899 city hall, 1909 Gunnison Valley Bank (with a compatible addition), the 1921-23 high school, Hermansen's Roller Mills, the rare Beaux-Arts style Star Theatre, and many impressive residences. Considered together with the newer buildings, the town's architecture conveys a strong sense of the community's past and present.