[2] Lithuanian linguist Kazimieras Būga explained its origins – in Selonian language the word lake was pronounced as ezeras or ezaras, plural form ezerasai.

From 1919 to 1929, in the newly independent Lithuania, the town was called Ežerėnai, from ežeras, the Lithuanian word for lake.

At that time, a manor stood in the present town's territory, together with a monastery and church on Didžioji Island in Lake Zarasas.

In 1613, Zarasai was marked on a map of the Grand Duchy of Lithuania, with the place-name written in Polish as Jeziorosa.

In 1837, the centre of Zarasai was rebuilt to a new plan, with a central horseshoe-shaped square bounded by a road, from which a network of streets radiated.

During the course of 1919 the Socialist Soviet Republic of Lithuania and Belorussia (Litbel) gradually lost territory to advancing Polish forces.

In 1924, the designation of Zarasai county was finally approved and public offices of the independent Lithuania were developed in the town.

During World War II, Zarasai was under German occupation from 25 June 1941 until 29 July 1944 and administered as part of the Generalbezirk Litauen of Reichskommissariat Ostland.

On August 26, 1941, 2,569 Jews from the Zarasai area were murdered near the village of Degučiai by an Einsatzgruppe of Germans and Lithuanian collaborators.