The town lies in the northernmost part of Orleans County, forming part of Vermont's border with the Canadian Province of Quebec, and is otherwise bordered to the east by Holland, the southeast by Morgan and Charleston, the southwest by Coventry and Brownington, and to the west by Newport and Lake Memphremagog.

It is represented by Robert Starr (D-North Troy) and Russ Ingalls (R-Newport) in the Essex-Orleans district of the Vermont Senate.

On October 29, 1779, the state of Vermont chartered it to Timothy Andrus and fifty-nine associates, with an area of 23,040 acres (93.2 km2).

[12] In the War of 1812, an expeditionary force of Quebec Eastern Townships' volunteers destroyed a barracks built at Derby with no personnel casualties.

[13] Portus Baxter and David Camp were Underground Railroad agents before the Civil War.

[14] On October 31, 1866, the town erected a granite monument at Derby Center in honor of those who died in the Civil War.

[17] The failed town of Salem was annexed to Derby by an act of the legislature of 1880, and took effect March 1, 1881.

[15] Like many Orleans County towns, Derby grew in population until 1890, after which the depression (then called "panics") of 1893 affected the local economy and agricultural prices.

In 1928, the Canadian Gateway Airport opened off Vermont Route 111, within walking distance from Derby Center.

The headquarters of the Community National Bank, which has 12 branches in Vermont, is located in Derby.

[23] Indoor Recreation of Orleans County (IROC) was constructed in 2004 and featured a sports arena, aquatic center and a multipurpose gymnasium facility that could be utilized for a range of sports, including basketball, volleyball and indoor soccer.