Founded in 1879, the city was named for Cadwallader C. Washburn, Republican governor of Wisconsin from 1872 until 1874.
Initially, the city's economy was based on lumbering, with sawmills lining the busy waterfront. In 1905, the DuPont company opened an explosives plant just outside town, providing an important source of employment as timber resources were growing scarce. The closing of the DuPont plant in 1971 was a severe blow to the local economy.
Sandwiched between the industrial city of Ashland and the prosperous tourist village of Bayfield, Washburn continues to struggle to find its identity. The opening years of the twenty-first century saw the small town riven with dissension between progressive elements striving to develop the town's economy in a sustainable manner that embraces the regions natural beauty, and a short-sighted city council eager to trade municipal assets and public land for short-term gain.