Northfield was platted in 1856 by John W. North. Local legend says that the town was named for John North and a Mr. Field. North, realizing that the town straddled the proposed northern border of Rice county, went to the state capital to lobby to move the border one mile north. Northfield was founded by settlers from New England known as "Yankees" as part of New England's colonization of what was then the far west.

It was an early agricultural center with many wheat and corn farms. The town also supported lumber and flour mills powered by the Cannon River. As the "wheat frontier" moved west, dairy operations and diversified farms replaced wheat-based agriculture. The region has since moved away from dairy and beef operations.

Today it produces substantial crops of corn and soybeans, as well as hogs. The local cereal producer Malt-O-Meal is one of the few remnants of Northfield's historic wheat boom. The city's motto, "Cows, Colleges, and Contentment", reflects the influence of the dairy farms as well as its two liberal arts colleges, Carleton College and St.

Olaf College. Since early in its history, Northfield has been a center of higher education. Carleton College (then Northfield College) was founded in 1866 by the Minnesota Conference of Congregational churches whose Congregation consisted of the "Yankee" settlers who had largely founded the town. These were people descended from the English Puritans who settled New England in the 1600s.

Carleton soon established its campus on the northern edge of town. St. Olaf College was founded in 1874 on the western edge of town by Norwegian Lutheran immigrant pastors and farmers who were eager to preserve their faith and culture by training teachers and preachers. These two institutions, which today enroll more than 5,000 students, make Northfield a college town. In the 1970s, completion of Interstate 35 six miles west of Northfield enabled the expansion of the Minneapolis–Saint Paul metro area south of the Minnesota River.

The downtown grain elevator accepted its last load of corn in 2000 and was torn down in 2002. Residential growth has been rapid since the mid-1990s. Northfield Hospital, which opened in 2003 in the town's northwest corner, is in Dakota County, so chosen because government reimbursement rates are more generous for Dakota County than for Rice County.