Before the 19th century, the Lethbridge area was populated by several First Nations at various times. The Blackfoot referred to the area as Aksaysim ("steep banks"), Mek-kio-towaghs ("painted rock"), Assini-etomochi ("where we slaughtered the Cree") and Sik-ooh-kotok ("coal"). The Sarcee referred to it as Chadish-kashi ("black/rocks"), the Creeas Kuskusukisay-guni ("black/rocks"), and the Nakoda (Stoney) as Ipubin-saba-akabin("digging coal"). The Kutenai people referred to it as a•kwum.
After the US Army stopped alcohol trading with the Blackfeet Nation in Montana in 1869, traders John J. Healy and Alfred B. Hamilton started a whiskey trading post at Fort Hamilton, near the future site of Lethbridge. The post's nickname became Fort Whoop-Up. The whiskey trade led to the Cypress Hills Massacre of many native Assiniboine in 1873. The North-West Mounted Police, sent to stop the trade and establish order, arrived at Fort Whoop-Up on October 9, 1874. They managed the post for the next 12 years.
Lethbridge's economy developed from drift mines opened by Nicholas Sheran in 1874 and the North Western Coal and Navigation Company in 1882. North Western's president was William Lethbridge, from whom the city derives its name. By the turn of the century, the mines employed about 150 men and producing 300 tonnes of coal each day. In 1896, local collieries were the largest coal producers in the Northwest Territories, with production peaking during World War I. An internment camp was set up at the Exhibition Building in Lethbridge from September 1914 to November 1916.After the war, increasing oil and natural gas production gradually replaced coal production, and the last mine in Lethbridge closed in 1957.
The first rail line in Lethbridge was opened on August 28, 1885 by the Alberta Railway and Coal Company, which bought the North Western Coal and Navigation Company five years later. The rail industry's dependence on coal and the Canadian Pacific Railway's efforts to settle southern Alberta with immigrants boosted Lethbridge's economy. After the Canadian Pacific Railway (CPR) moved the divisional point of its Crowsnest Line from Fort Macleod to Lethbridge in 1905, the city became the regional centre for Southern Alberta. In the mid-1980s, the CPR moved its rail yards in downtown Lethbridge to nearby Kipp, and Lethbridge ceased being a rail hub.
Between 1907 and 1913, a development boom occurred in Lethbridge, making it the main marketing, distribution and service centre in southern Alberta. Such municipal projects as a water treatment plant, a power plant, a streetcar system, and exhibition buildings—as well as a construction boom and rising real estate prices—transformed the mining town into a significant city. Between World War I and World War II, however, the city experienced an economic slump. Development slowed, drought drove farmers from their farms, and coal mining rapidly declined from its peak. After World War II, irrigation of farmland near Lethbridge led to growth in the city's population and economy. Lethbridge College (previously Lethbridge Community College) opened in April 1957 and the University of Lethbridge in 1967