The town is located at Eskilstunaån's very first rapids upstream of Lake Mälaren, creating a natural trading and reloading site.

Several archeological digs have uncovered remains of two (possibly three) "strong houses", that is, small fortresses or castles, the one on Husberget next to the rapids dating from around 1300 AD.

In 1436, during the aftermath of the Engelbrekt Rebellion, Torshälla was plundered by the forces of Lord High Constable of Sweden (later King) Karl Knutsson Bonde, due to siding with the local nobleman Erik Puke's uprising.

[3] Torshälla was during the Middle Ages the dominant trading town in Rekarne, the northwestern part of Södermanland County, which roughly corresponds to present day Eskilstuna Municipality.

[5] During the decades of economic growth leading up to the 1970s the Nyby Bruk steel mill attracted large numbers of workers from other parts of Sweden and from abroad.

Due to the close proximity of and loss of business to the larger neighbour Eskilstuna, Torshälla has in recent years gradually acquired the character of a picturesque commuter town, while still retaining a significant stainless steel industry.

The main industry and private employer in Torshälla is Outokumpu, producing cold rolled stainless steel products at Nyby Bruk.