According to the legend, either Yamato Takeru or Yamabushi discovered the hot springs around Kusatsu; however, there is no historical evidence for either claim.

Local folklore recounts that Minamoto no Yoritomo came to Kusatsu in 1193 in pursuit of fleeing Taira clan warriors.

Almost 400 years later, during the Sengoku period, there is more evidence for the existence of Kusatsu, which had grown into a hot-springs resort popular with wounded samurai.

This was partly due to the increasing incidence of venereal diseases like gonorrhoea and syphilis, contracted in Tokyo red light districts like Yoshiwara, for which there was then no known cure besides bathing in a hot spring.

Hearing the praise of the Kusatsu Onsen the 8th Shōgun Tokugawa Yoshimune had hot-spring water drawn from the Yubatake source and transported into his castle for bathing.

Bälz was one of the fathers of modern western medical science in Japan and court physician to Emperor Meiji.

In 1916 Cornwall Legh using her own funds established the St. Barnabas' Mission, providing residential care facilities to the sizable population of Hansen's Disease sufferers then present in the Yunosawa area of Kusatsu.

Cornwall Legh devoted her remaining years to the care of the Kusatsu leprosy community, her work and dedication to this cause recognized with honors by the Japanese Government.

[6] In 1941 the St. Barnabus' Hospital was closed, replaced by the, subsequently notorious, government run Kuryu Rakusen-en Sanatorium.

St. Barnabus' Church and Cornwall Legh Park in Kusatsu attest to the charitable legacy of Mary Cornwall-Legh and the history of the community she sought to serve.

In 2020, a local election in which over 90% of voters voted to recall town councillor Shoko Arai made international headlines.

In October 2022 the Maebashi District Public Prosecutor's Office indicted Arai on charges of filing a false complaint and defamation against the mayor.

[10] In December 2022, Reiji Iizuka, a writer, stopped selling e-books meant to denounce the mayor and issued a statement apologizing to him.

[13] According to prosecutors, Iizuka opposed the mayor's attempts to reform Kusatsu's hot spring management and published the e-book even though he knew Arai's testimony might be false.

[15] Kusatsu has a mayor-council form of government with a directly elected mayor and a unicameral town council of 12 members.

In terms of national politics, the town is part of Gunma 5th district of the lower house of the Diet of Japan.

About 90% of the working population is employed in the tertiary sector, primarily in connection with its hot spring resorts, with very little industry and almost no agriculture.

In 1964, rail services to the town ceased after the closure of the nearby sulfur pit and the ensuing loss of freight traffic, which made operation of the line uneconomic.