It originated from an iron hammer forge, first mentioned in the 16th century and was abandoned in 1974 due to the construction of Eibenstock Dam.

Jacob Kleinhempel, the father-in-law of tax official and smeltery and forge owner Melchior Siegel (1515–1588),[2] began to produce weapons in 1531.In 1568 the two men were among the first forge owners in the Ore Mountains who obtained the concession for a blast furnace.

[6] In 1819 Muldenhammer is described as a well-managed estate with 21 houses "in a deep and meandering, partly rocky, dark, but romantic valley above the mouth of Weißbach stream, neighbouring to Neidhardsthal".

Muldenhammer was considered part of Hundshübel until 1881 when the small industrial hamlet became an independent municipality.

[8] When Eibenstock Dam was built (1974–1987), the inhabitants of the settlement had to be relocated because the ten residential buildings, the nearby paper mill and wood pulp factory and the large estate came to lie in the area that was flooded by the impoundment of Zwickauer Mulde and some of its tributaries.