The name Te Aroha derives from the Māori name of Mount Te Aroha. In one version, Rāhiri, the eponymous ancestor of Ngāti Rāhiri Tumutumu, climbed the mountain and saw his homeland in the distance and felt a sense of love (aroha) for it. The town is properly named Te Aroha-a-uta; uta meaning 'inland', so the town is named "love flowing inland".
The European settlement was established in the late 1870s. The population grew quickly during the 1880s as a result of a gold rush. A spa was founded in 1883 but popularity had declined by the 1930s.
Te Aroha Borough Council took over from the 1880 Town Board on 2 May 1898. Herriesville became part of Te Aroha Borough Council. The 1938 Council Chambers is now a Category 2 listed building. Matamata-Piako District Council took over under the 1989 local government reforms.
Created in 1888, Te Aroha and Lemon was New Zealand's first local fizzy drink. It was produced up until the 1960s.