The town has gone through several name changes in its history, starting as "Stephensburg", then "Newtown", and finally winding up as "Stephens City", though it nearly became "Pantops".

[10] The area surrounding present-day Stephens City was originally inhabited for 12,000 years by Native Americans, including the Susquehannock, Lenape, Tuscarora, Catawba, Iroquois, and Cherokee.

[13]: 1–2 Hite, a wealthy Protestant immigrant from Strasburg, Germany, had settled in Kensington, New York, before moving to Montgomery County, Pennsylvania.

[11]: 2 [13][14] One of the men who had traveled with Hite, Peter Stephens, received a land grant of 674 acres (273 ha) and settled 2 miles (3.2 km) further south where he built a log house.

Peter, his wife, Mary (Maria Christen Rittenhouse), and their children were soon joined by others who built homes in the surrounding area.

[14][16] During the French and Indian War, Lewis made plans to establish a town, citing the need for a central area where locals could gather to defend themselves from possible attack.

By the start of the Revolutionary War, Stephensburg was often called simply "New Town" or "Newtown", as the new settlement on the Great Wagon Road south of Winchester.

[20] In 1853, free African Americans began a settlement about a mile east of town near the intersection of present-day Route 277 and Double Church Road which became known as "Crossroads" or "Freetown", which lasted until after the Civil War.

After the January 1, 1863, Emancipation Proclamation, some of the newly freed slaves worked for Union commanders and many of the already free African Americans left the area.

[18][22] On May 24, 1862, Stonewall Jackson's Confederate forces advanced northward on the Valley Pike and attacked Union troops, who were retreating at the time.

At Newtown, General George Henry Gordon of the Second Massachusetts Infantry ordered his Federal troops to make a stand.

The skirmishing involved heavy artillery fire, but Gordon's men retreated without loss of the important supply wagons.

[13]: 16 [18] In June 1864, Major Joseph K. Stearns of the 1st New York Cavalry arrived under orders to burn the town down to help stop Confederate ambushes on the wagon road.

The company was authorized to construct a rail line between Winchester and Strasburg, linking Newtown to the rest of the nation by railroad for the first time.

This event, along with the effects of a devastating 1936 fire that destroyed or damaged most of the buildings in Mudville, resulted in the demise of that part of town.

The wagon road, which had been made part of U.S. Route 11, had led traffic through the center of town, but the interstate passed less than a tenth of a mile to the east, drawing off development, retail trade and ultimately, businesses.

Developers constructed new residential subdivisions both within and outside the town boundaries to the east for access to I-81, attracting commuters to purchase homes.

[28] Among the contributing properties to the historic district are numerous 18th-century buildings, 19th-and-early-20th century homes and businesses, cemeteries, churches, and a school complex.

[48][49] According to the 2021 American Community Survey, residents self-identified with a variety of ethnic ancestries; the major categories reflect descendants of the settlers of the 18th and 19th centuries.

[59] Stephens City plays host to the annual "Newtown Heritage Festival" held each Memorial Day weekend.

The three-day event features many crafts, carnival-style food, a tractor wagon ride through town, local music at Newtown Commons, a parade on Saturday and fireworks.

[28] Methodism arrived in Stephens City in 1775 and the first Methodist society west of the Blue Ridge Mountains was established.

[28] Lewis Stephens donated land for a permanent meeting place, and in 1790, a log cabin that Francis Asbury described as a "spacious chapel" was built.

[28] The oldest surviving church building in the town is Orrick Chapel, built between 1866 and 1869 as the home of an African Methodist Episcopal congregation.

Missionaries from this first independent black denomination came South after the war to aid freedmen and plant new congregations; they attracted hundreds of thousands of new members.

This church replaced an earlier Methodist chapel constructed in the late 1850s; it was razed by Union troops during the winter months of 1864–1865 near the end of the Civil War.

[65] A Roman Catholic parish affiliated with the Diocese of Arlington and a Jewish synagogue, which each function as centers for their respective members in the entire Shenandoah Valley, are located approximately 5 mi (8.0 km) north in Winchester.

[76][77] The two local options for residents wishing to obtain degrees in higher education are Shenandoah University in Winchester and Laurel Ridge Community College in Middletown.

[81][82] Historic U.S. Route 11 (Main Street) traverses Stephens City proper, while Interstate 81 is located immediately east of the town line.

[86][87] There are no public transportation options in Stephens City, but officials plan to create a system of bicycle trails and sidewalks, including a connection to Sherando Park and other areas east of Interstate 81.