The city has its origins in a military settlement built to guard the southern frontier of the Tsardom of Russia.

It was renamed to Krasnyi Lyman by the Soviet government that followed Tsarist Russia, and continued to grow throughout the 20th century.

It remained under government control throughout the remainder of the war in Donbas, and was renamed to its historic name Lyman in 2016 as part of decommunization in Ukraine.

Archaeologists have discovered Neolithic stone sculptures in the Lyman district and Scythian remains from the fourth and third centuries BCE.

[5][6] In 1646, the "Mayaka" fort was built 18 kilometres (11 mi) away from the location of modern Lyman, as part of the larger effort to defend the southern border of Tsardom of Russia from the attacks of the Crimean Tatars, especially along the Donets river.

[5][6] In the course of the administrative reform carried out in 1708 by Moscow tsar Peter I, Lyman was explicitly mentioned as one of the towns included to Azov Governorate.

[5] Eventually, the Bolsheviks recaptured Lyman, won the war and established the communist Soviet Union on much of the territory of the former Russian Empire.

During World War II, Krasnyi Lyman was occupied by Nazi Germany between 7 July 1942 and 3 February 1943.

[21] On 8 July 2023, the Russian Armed Forces shelled the residential area in the center of Lyman with 9M55K-series Smerch cluster munition.

[22][23][24] The city is known by locals as "The Gates of Donbas", and is a regional export hub for goods like coal, salt, and sand.

Other industries include food processing, a feed mill, quarry management, the Leman-Beton concrete manufacturer, and others.

[4] After the intense fighting during the Russian invasion of Ukraine, most residents have fled or have been killed, with Lyman mayor Oleksandr Zhuravlev estimating only 6,000 remaining in 2023, including 500 children.