The town is in the shire of Donnybrook-Balingup, known for its scenic Blackwood River Valley and agricultural industries.

[3][a] Mullalyup and the Shire of Donnybrook–Balingup are located on the traditional land of the Wardandi people of the Noongar nation.

[5][6][7] The first Europeans to settle in the area were the Coverley family who took land close to the town and named their farm "Elm Grove".

The first major building in the town was the Blackwood Inn, built in 1882 by John Coverley for Thomas Maslin.

During the 1890s the town was included as a siding in the construction of the railway line from Donnybrook to Bridgetown.