The second element is dalr, which means "dale" or "valley"; the first element is usually taken as the genitive case of the river name Hemsa (now Hemsil) of unknown derivation, although Sophus Bugge believed that it might derive from the Old Norse hemsa, hefnsa or hofn, meaning "going to pasture".

The Norwegian word hems ("bed built in a small loft room") is named after the valley of Hemsedal.

In the 1647 cadastre there was only one farm in Hemsedal large enough to pay full taxes; there were 24 liable for half taxation and 15–16 assessed as disused.

Before that, in the latter half of the 19th century, a road had been built through the village with the hope that it would become a major route to Western Norway.

A tourist agency was established in 1939 and in 1952 suggested building a ski lift in Hemsedal, but this did not happen until 1959, when Fossheim Pensjonat created the Tottenheisen, a 350-metre (1,150 ft) ski lift behind the inn at Ulsåk, serving the first piste in the village, Tottenløypa.

[13][14] Hemsedal Skisenter opened at Holdeskaret in 1961, and a few years later, planning began for tourist development.

Hemsedal is now also popular in the summer season, due to opportunities for fishing, hiking, climbing, cycling, golf and other activities.

[17] One of the first tourists in Hemsedal was the Norwegian polar explorer Fritjof Nansen, who visited in 1898 and stayed at the Bjøberg Fjellstue.

The ski centres in Hemsedal and Grøndalen were bought in 2000 by the Swedish company Sälenstjärnen, which changed its name the following year to SkiStar.

Skistar also owns Trysil Ski Centre, Sälen and Åre, Vemedalen and Hammarbybacken in Sweden.