One of the New Hampshire Grants, Middlebury was chartered by Colonial Governor Benning Wentworth on November 2, 1761. The name "Middlebury" came from its location between the towns of Salisbury and New Haven. It was awarded to John Evarts and 62 others. The French and Indian Wars ended in 1763; the first settlers arrived in 1766.

John Chipman was the first to clear his land, Lot Seven. During the Revolutionary War, much of the town was burned in Carleton's Raid on November 6, 1778. After the war concluded in 1783, settlers returned to rebuild homes, clear forests and establish farms. Principal crops were grains and hay. Landowners vied for the lucrative honor of having the village center grow on their properties.

A survey dispute with Salisbury led to the forfeiture of Gamaliel Painter's farm to that town, and his transition from farming to developing Middlebury Village near his and Abisha Washburn's mill, together with other mills that surrounded the Otter Creek falls. Industries would include a cotton factory, sawmill, gristmill, pail factory, paper mill, woolen factory, iron foundry, and marble quarry.

The Rutland & Burlington Railroad first arrived on September 1, 1849. Around 1830, Middlebury was the second largest town in Vermont. Middlebury College, one of the United States' elite liberal arts colleges, was founded in 1800. It is a member of the NESCAC. In the summer, the town plays host to the annual Middlebury College Language Schools, as well as the college's Bread Loaf Writers' Conference, the oldest surviving conference of its kind in the nation. On October 22, 2007, central Middlebury was evacuated for a short time because of a train derailment; the Middlebury Union Middle School served as the evacuation headquarters. Today, as the largest town by population in Addison County, Middlebury serves as the commercial and business center for the region.

Downtown hosts a three-screen movie theater, the post office, and two historic inns, as well as many shops and restaurants. There is considerable development along U.S. Route 7 heading south of town, including Shaw's and Hannaford supermarkets, two drugstores, most of the town's gas stations, and several fast-food spots.

Of note is Middlebury's A&W, Vermont's only remaining car-hop restaurant and a popular spot with both locals and Middlebury College students. Along with A&W, fast food restaurants in Middlebury include a McDonald's, a Dunkin' Donuts, and a Subway.