The first inhabitants of the Missoula area were American Indians from the Salish tribe. They called the area "Nemissoolatakoo," from which "Missoula" is derived. The word translates roughly to "river of ambush/surprise," a reflection of the inter-tribal fighting common to the area. The Indians' first encounter with whites came in 1805, when the Lewis and Clark expedition passed through the Missoula Valley.

There were no permanent white settlements in the Missoula Valley until 1860, when C. P. Higgins and Francis Worden opened a trading post called the Hellgate Village on the Blackfoot River near the eastern edge of the valley. It was followed by a sawmill and a flourmill, which the settlers called "Missoula Mills". The completion of the Mullan Road connecting Fort Benton, Montana with Walla Walla, Washington and passing through the Missoula Valley meant fast growth for the burgeoning city, buoyed by the U.S. Army's establishment of Fort Missoula in 1877, and the arrival of the Northern Pacific Railroad in 1883. With this, Missoula became a trading center in earnest, distributing produce and grain grown in the agriculturally prosperous Bitterroot Valley. Businessmen A. B. Hammond, E. L. Bonner, and R. A. Eddy established the Missoula Mercantile Company in the early 1880s.

The city's success was aided by two other factors. First was the opening of the University of Montana in September 1895, serving as the center of public higher education for Western Montana. Then, in 1908, Missoula became a regional headquarters for the Forest Service, which began training smokejumpers in 1942. The Aerial Fire Depot was built in 1954, and big industry came to Missoula in 1956, with the groundbreaking for the first pulp mill.

Until the mid-1970s, logging was a mainstay industry with log yards throughout the city. Many ran teepee burners to dispose of waste material, contributing to the smoky haze that sometimes covered the town. The current site of Southgate Mall was once the location of the largest log-processing yard within several hundred miles. The saws could be heard over two miles away on a clear summer night. However, by the early 1990s, changes in the economic fortunes in the city had shut down all the Missoula log yards.

Missoula is located within the fly-fishing Golden Triangle and is a popular area for hunting deer, elk, bear, moose, and other game animals. This provides Missoula with an ample tourism industry based on hunting and fishing.