Monterey is rooted in a settlement that developed around a landmark known as the "Standing Stone" in the late 18th and early 19th centuries.

The stone was as a guidepost for travelers along Avery's Trace, and is believed to have earlier served as a boundary marker between the territories of the Cherokee and Shawnee.

[2] By 1805, three families had settled permanently in area, and the Standing Stone Inn was established to cater to westward-bound migrants.

[2] In the spring of 1864, during the Civil War, 200 Union soldiers led by Colonel William B. Stokes entered the Monterey area with orders to root out Confederate guerrilla activity.

On the morning of March 12 of that year, Stokes' men entered the home of William Alexander Officer near Monterey and killed six of his guests, having accused them of being Confederate guerrillas.

[9] On the evening of April 3, 2020, the National Weather Service issued a flash flood warning for the watershed of the Calfkiller River due to the failure of the dam confining the town's municipal lake.

It is located about 90 miles (140 km) east of Nashville and the same distance west of Knoxville, and is connected with these two cities by Interstate 40 (exits 300 and 301) and U.S. Route 70.

According to the United States Census Bureau, the town has a total area of 3.0 square miles (7.8 km2), of which 0.34% is covered by water.