The history of Mussoorie dates back to 1825 when Captain Young, an adventurous British military officer, together with a Mr. Shore, the resident Superintendent of Revenues at Dehradun explored the present site and jointly constructed a shooting lodge. This laid the foundation of this holiday resort which now has few rivals.

The name Mussoorie is often attributed to a derivation of 'mansoor', a shrub which is indigenous to the area. The town is in fact often referred to as 'Mansoori' by locals.

The main promenade in Mussoorie is called, as in other hill stations, the Mall. In Mussoorie, the Mall stretches from Picture Palace at its eastern end to the Public Library (shortened to 'Library') at its western end. During the British Raj, signs on the Mall expressly stated: "Indians and Dogs Not Allowed"; racist signs of this type were commonplace in hill stations, which were founded 'by and for' the British. Motilal Nehru, the father of Jawahar Lal Nehru, deliberately broke this rule every day whenever he was in Mussoorie, and would pay the fine. The Nehru family, including Nehrus's daughter Indira (later Indira Gandhi) were frequent visitors to Mussoorie in the 1920s, 1930s and 1940s. They also spent much time in nearby Dehradun, where Nehru's sister Vijayalakshmi Pandit ultimately settled full-time.

In April 1959, after fleeing Chinese occupation of Tibet, the Dalai Lama established the Tibetan Government of Exile in Mussoorie. The Government of Tibet in exile eventually moved to Dharamsala in Himachal Pradesh. The first Tibetan school was established in Mussoorie in 1960. Tibetans settled mainly in Happy Valley in Mussoorie. Today, some 5,000 Tibetans live in Mussoorie.

Now, Mussoorie suffers from over-development of hotels and tourist lodges, given its relative proximity to Delhi, Ambala and Chandigarh, and has serious problems of garbage collection, water scarcity and parking shortages, especially during the summer tourist season. Landour, Jharipani and Barlowganj have fewer such problems.