The town is situated within the Lavanttal Alps, west of the Koralpe range in the valley of the Lavant River, a left tributary of the Drava.

The adjacent settlement became the administrative centre of Bamberg's Carinthian territories and in 1331 received town privileges by Prince-Bishop Werntho Schenk von Reicheneck.

During the Protestant Reformation the Bayerhofen Castle residence, first mentioned in 1239 and rebuilt in the 16th century, became a center of Lutheranism, which nevertheless was suppressed by the Counter-Reformation.

Wolfsberg Castle was purchased by Count Hugo Henckel von Donnersmarck in 1846 and rebuilt in a Tudorbethan style.

In World War II the village of Priel south of the town center was the site of the Stalag XVIII-A prisoner-of-war camp with about 7,000 inmates.