Like most western towns, the name has been changed numerous times. First it was known as Clover Creek by Oregon Trail travelers, later it became Belmont and finally was given the name Montpelier by Brigham Young, one of the founding fathers of Mormonism, after the capital of his birth state of Vermont. The city was first settled in 1864.
In 1892 the railroad was extended to Montpelier, with a terminal being located here until 1972. The railroad brought a population that made Montpelier the county's "Gentile Town" as opposed to nearby Mormon-run Paris that was the county seat. Both cities would have tabernacles built in their city limits.
U.S. Routes 89 and 30 intersect in Montpelier.
In 1896 Montpelier was the site of a bank heist by Butch Cassidy and members of Butch Cassidy's Wild Bunch, Elzy Lay and Bob Meeks, who were supposedly trying to get enough money to bail out fellow gang member Matt Warner. This historical footnote has become a notable component of the town's identity and is commemorated by a plaque on Washington Street (Highway 89).