The original town was a ranch and waypost, named Mandisoví, created in 1777, which grew into a prosperous village but fell then to civil strife.

A new town of Mandisoví was founded in a close location by Colonel Manuel Antonio Urdinarrain, who commanded the area, under the orders of the caudillo Justo José de Urquiza.

In 1974 the citizens of Federación underwent another relocation, as the latest settlement near the Uruguay River was to be flooded by the waters of Salto Grande.

The new Federación was formally inaugurated in 1979 by de facto President, military dictator Jorge Rafael Videla.

The local economy is based on citrus crops and the timber industry (the city has 22 sawmills), besides small-scale beekeeping.