It was incorporated on March 4, 1848, as Tunnelsville, and changed its name in 1856 to Tunnel Hill.

Both names refer to the nearby 1,497-foot (456 m) Chetoogeta Mountain Tunnel railroad tunnel cut through Chetoogeta Mountain, officially dedicated on October 31, 1849 by Etowah steel-maker Mark A. Cooper on behalf of the state-owned Western & Atlantic Railroad.

[4] Throughout the American Civil War, the homes around Tunnel Hill were used as part of a major hospital system.

The Clisby Austin House also served as the headquarters for Union Gen. William T. Sherman while he made his plans for attacks against nearby Dalton and Resaca, which became the opening battles of what would later be known as the Atlanta Campaign.

[9] The town is situated in a rugged area along the western base of Chetoogeta Mountain (listed as "Tunnel Hill Ridge" on USGS maps).

U.S. Route 41 connects Tunnel Hill to Ringgold to the northwest and Dalton to the southeast.

According to the United States Census Bureau, the city has a total area of 1.5 square miles (3.9 km2), all land.