The town of Lugknitz, formerly incorporated into Bad Muskau, was separated in 1945 by the new state border drawn along the Oder–Neisse line.

[3] Muskau Park, a UNESCO World Heritage Site, is similarly split with the municipality containing its western half.

Muskau (Sorbian, "men's town") was founded in the 13th century as a trading center and defensive location on the Neisse, being first mentioned in a document in 1249.

[6] Part of the von Bieberstein crest, the red five-pointed stag horn, remains in the town's coat of arms.

Between 1697 and 1763, it was also under the rule of Polish kings in personal union and was one of two main routes connecting Warsaw and Dresden ran through the town at that time.

During the withdrawal of the Napoleonic army from Russia in 1813, Württemberg cuirassiers brought a typhus epidemic to Muskau, which killed around a fifth of the population.

During its heyday from the 17th to the middle of the 19th century, up to 20 masters settled in the southern suburb of the town, the Schmelze (today Schmelzstrasse).

In July 1945, Count von Arnim received the notification that “class rule and all businesses had been seized without compensation."