Berryville was founded at the intersection of the Winchester Turnpike and Charlestown Road. The land was first granted by the Crown to Captain Isaac Pennington in 1734, and George Washington surveyed it on October 23, 1750. In 1754, Pennington sold the land to Colonel John Hite. According to legend, Daniel Morgan would engage in combat with young toughs at the intersection, having first piled large stones nearby to use as ammunition in case of need.

Because of this story, and a rowdy tavern nearby, the area was first given the informal name of "Battle Town". Hite sold the tract in 1765 to his son-in-law, Major Charles Smith. Smith named his estate "Battle Town", and on the site of the former tavern he built a clapboard homestead. This structure still stands on what is now Main Street and is now known as "The Nook". Daniel Morgan returned to the area after distinguishing himself in the Revolution, living at Saratoga, and briefly at Soldier's Rest.

He was one of the frequent (and reputedly most quarrelsome) patrons of the new tavern (where now stands the Battletown Inn). Major Smith's son, John Smith, in 1797 sold 20 acres (81,000 m2) of his inheritance to Benjamin Berry and Sarah (Berry) Stribling, who divided it into lots for a town. It was established as the town of Berryville on January 15, 1798. By 1810, the town had at least 25 homes, three stores, an apothecary (pharmacy), two taverns, and an academy (school).

It was not much larger when it was designated as the county seat of newly formed Clarke County in 1836. An 1855 gazetteer described it as "a small town" that "has some trade, and contains an academy and 1 or 2 churches."In the Gettysburg Campaign, the town was used as an outpost supporting Winchester during Second Battle of Winchester.

In 1864 General Jubal A. Early briefly had his headquarters in the town. Not long afterward the Battle of Berryville was fought in and around the town during the Valley Campaigns of 1864. The railroad reached the town in the 1870s.Virginia governor and U.S. senator Harry F. Byrd long resided in Berryville.

A state senator in 1916, he built a log cabin named "Westwood" (a name he also gave his daughter) in Berryville at a family-owned orchard. The cabin was constructed from chestnut logs prior to the chestnut blight. In 1926, Byrd purchased Rosemont, an estate adjacent to his family's apple orchards in Berryville.

He moved there with his family after his term as governor ended in 1929.