The indigenous population established originally in El Tamarindo, NW of the town's actual position.

Due to the constant flood of the Malacatoya River, the population moved between September and December 1776 to a place formerly known as Camoapilla, now the town of Teustepe.

Teustepe is of historical importance for its resistance during the war against filibuster William Walker.

The Military District of Teustepe was created by the initiative of General Tomás Martínez in April 1861.

The festivities in honor of Santa Rita de Casia are held between May 18–23.