Guillaume, son of Archambaud IV of Bourbon, built the castle in a defensible position on a small rocky hill on a bend in the river Cher.

The town, which formed part of the duchy of Bourbon, was taken by Henry II in 1171, and by Philip Augustus in 1181; the English were finally driven out in the 14th century.

Montluçon became the administrative seat of the area in 1791, then entered the industrial era thanks to the presence of coalpits 12 km (7 mi) distant in Commentry, the Canal de Berry in 1830 and the railway in 1864.

For this reason, the Allies bombed the site on 12–16 September 1943, as well as part of the nearby town Saint-Victor, causing 36 deaths and injuring more than 250 civilians.

Today Montluçon has chemical industries, tyre manufacture (Dunlop), and electronics (Sagem), and more recently a technopole at La Loue was established for high-tech companies.

New Zealand-born SOE agent Nancy Wake, the most decorated woman of World War II, led her small army of resistance fighters in the countryside around Montluçon.

Montluçon is linked to French and European road networks, by three major routes: The Gare de Montluçon-Ville railway station is served by three main passenger rail lines.

Overlooking the town is the castle rebuilt by Louis II, Duke of Bourbon, and taken by Henry IV during the French Wars of Religion; it serves as a barracks.