Because of the wild strawberries that grow there, Idyllwild was known originally as Strawberry Valley. This is especially beside the creek that runs through the town, Strawberry Creek. Shepherds regularly brought their flocks to the valley. In the 1880s, the Domenigoni family of San Jacinto homesteaded landed near what is now the Idyllwild Arts Academy.
In 1889, George and Sarah Hannahs built a summer camp next to the site of their sawmill in upper Dutch Flat; which they named Camp Idyllwilde. By the 1890s a toll roadhad been built in Hemet, which opened Idyllwild to settlement, logging, and tourism. A post office was established in 1893;at this time, the town was called Rayneta after the Hannahs' son Raymond.
In 1901, the Idyllwild Sanatorium was built to treat tuberculosis patients. The sanatorium was soon remodeled as a resort called "Idyllwild Among the Pines," and, later, "Idyllwild." In 1901, the town's official named was changed to Idyllwild.
With the invention of the automobile, Idyllwild became a weekend tourist attraction for people in Southern California. For many years, the town presented itself as an alpine village, and hotels and businesses had German or German-sounding names, but this practice ended during World War II.
From the 1930s to 1950s, Idyllwild was a center for the production of "knotty pine furniture", the fine log furniture made in the Arts and Crafts style. Under the direction of Charles "Selden" Belden, the furniture was produced by the Idyllwild Pinecraft Furniture Company and, later, C. Selden Belden Idyllwild Pinecraft. The furniture is now "collectible" and can be found in many Idyllwild houses and cabins.
In the 1950s, the Yosemite Decimal System of grading routes was developed at Tahquitz by members of the Rock Climbing Section of the Angeles Chapter of the Sierra Club. In 1958 world-renowned modern architect Frank Gehry designed and constructed his first private residence, at the age of 28. Built along with USC classmate/architect Greg Walsh, "The David Cabin" shows influences of his later works, including unpainted plywood and other exposed materials and is located on Middle Ridge Drive.