The first permanent non-indigenous settlers came in 1853 to join the Hudson's Bay Company sheep farmers who already conducted business in the area.

[8]With the coming of the Northern Pacific Railway in 1873, Yelm began to prosper, having found an outlet for its agricultural and forestry products.

[7][9] During the Great Depression, high maintenance costs and an unstructured water distribution plan bankrupted the Yelm Irrigation Company.

[citation needed] At the beginning of the 21st century, Yelm was the 10th fastest growing city in the state in regard to population.

The city is near the Nisqually Indian Reservation (located to the northwest on State Route 510), and Joint Base Lewis–McChord on the northeast side of the river.

To a large extent, Yelm acts as a bedroom community for residents working in the surrounding cities of Tacoma, Olympia and Centralia.

It also hosts a large number of military families currently or formerly stationed at nearby Joint Base Lewis-McChord.

It has a kitchen, covered facilities, a playground area, picnic tables, public restrooms and a softball backstop.

[16] Yelm has the first Class A Water Reclamation Facility and distribution system in Washington,[17][18] which reclaims all wastewater for local irrigation and recharge streams.

The city council, the policy-making branch of Yelm's government, consists of seven members elected at-large to staggered, four-year terms.

Sales tax, 8.7% per dollar spent, is distributed as follows: The current mayor of Yelm is Joe DePinto.

[22] The council establishes policy for the city, adopts the annual budget, and represents Yelm's interests on regional boards and commissions.

Firefighting services for the cities of Yelm, Rainier and surrounding unincorporated areas are provided by the Southeast Thurston Fire Authority.

Its elementary schools are Fort Stevens, Lackamas, McKenna, Millpond, Southworth and Yelm Prairie.