The city was founded as Woodspur in 1876, when the Southern Pacific Railroad built a rail siding on the site. In the 1880s the indigenous Cahuilla tribe sold their land plots to the railroads for new lands east of the current town site, and in the 1890s, a few hundred traqueros took up settlement along the tracks.

In 1901, the citizens of Woodspur voted on a new name for their community and at a town hall meeting, the homeowners settled on "Coachella". The origin of the name Coachella is unclear. Some locals believe it was a misspelling of conchilla, a Spanish word for the small white snail shells found in the valley's sandy soil, vestiges of a lake that dried up over 3,000 years ago. Coachella began as a 2.5-square-mile (6.5 km2) territory gridded out on the mesquite-covered desert floor.

Coachella became a city in 1946. During the incorporation voting process, the first city council was tentatively elected: Lester C. Cox, T. E. Reyes, John W. Westerfield, Lester True, and Paul S. Atkinson. Also elected on November 26, 1946, were City Clerk Marie L. Johnson and City Treasurer John C.

Skene. John Westerfield was appointed mayor at the first meeting. In the 1950s Coachella begin to expand into its range, about 32 square miles (83 km2), an area which contained large year-round agricultural corporate farms and fruit groves, particularly of citrus (lemons, oranges, grapefruit) and date palms. By the 1980 census, Coachella's population had reached at least 10,000 due to relatively slow population growth.

Due to a high percentage of Hispanics in the city, Coachella was a scene of Chicano political activism. The agricultural area surrounding Coachella was where the United Farm Workers union staged strikes and protests, including visits by UFW leader César Chávez in the 1960s and 1970s. In 2018, Harrison Street (the main street in town) was renamed for him.In 1995, state and federal officials designated Coachella as part of the Coachella Valley Enterprise Zone to boost economic activity and entice businesses to relocate to this rural city which was once home to several fruit shipping plants. In 2006, 29-year-old Eduardo Garcia became the city's youngest mayor ever.

Garcia was a lifelong Coachella resident and a 1995 graduate of Coachella Valley High School. He attended the College of the Desert in Palm Desert, California. In 2010, a Coca-Cola bottling facility (a LEED certified building) was added to the city's new light industry facilities, a boon in the rapid-growth community which has a currently troubled economy.