The town was settled by Lutheran migrants largely from in and around a small village then named Kay in Prussia and now known as Kije, Lubusz Voivodeship in Poland.

Most moved out of Adelaide and to the Barossa Valley and settlements in the Hills such as Hahndorf, living in socially closed communities, by 1842, and did not participate in government until 15 years later.

Due to the First World War in Europe, in 1917 the South Australian Government changed many German place names.

[5] Hahndorf was re-instated as the town's name with the enactment of the South Australia Nomenclature Act of 1935 on 12 December 1935.

This schism is closely linked to the formation of two original Lutheran synods in Australia which coexisted until their merger in 1966.

The Hahndorf Bowling Club was established in 1976 and has a full size (nine rink) green, which is a woven carpet surface enabling all weather competition, and a large clubhouse.

The (soccer) Football Club was formed in the early 1980s and plays home games at "Pine Avenue".