In the village of Bergkirchen, which belongs to Bad Oeynhausen, a wellspring sanctuary existed in pre-Christian (Saxon) times at the local crossing of the Wiehengebirge, which was replaced in the 9th century by a church. Today's church is a subsequent building. On the church and the downhill-situated Widukind spring plates explain this further. A few metres from the church a 13th-century timbered homestead can still be found.
In 753 Pepin the Short, according to the Royal Frankish Annals, stopped over ad locum qui dicitur Rimiae, so that Rehme is commonly accepted as the oldest part of town.
The origin myth of Bad Oeynhausen relates that in 1745 a local farmer named Sültemeyer noticed that after his pigs had wallowed in nearby mud they had a salty crust on their backs and he decided to investigate the source. After public awareness of this finding, King Frederick II of Prussia ordered the construction of a saltworks, which was named "Royal Saline Neusalzwerk". Today's Sültemeyer Fountain (colloquial: Pig-Fountain), in the city centre, is a reminder of the city's beginning.
After 1830, mining captain Carl Baron of Oeynhausen (1795–1865) oversaw drilling in today's spa garden area in search of salt deposits, but instead found a thermal salt spring in 1845. Quickly the healing abilities of this spring were discovered and first baths were built in the community, which now was called "Neusalzwerk near Rehme". In 1848 King Frederick William IV of Prussia renamed it to "Royal Bath (German: Bad) Oeynhausen", and this name was retained after receiving its own town charter in 1860.
The opening of the Cologne-Minden railway line in 1849 connected the city with railroad network.
The growth of spa activities and the town's development continued into World War II. Among other things the Kurpark (spa garden), according to plans by Peter Joseph Lenné, and the Kurhaus (spa hotel) in 1908 (from 1980-2002 a Casino was located here; today called the Kaiserpalais, it hosts a Varieté, a noble restaurant and a discothèque) were constructed. At the beginning of the 20th century residential houses for the bourgeoisie were built around the spa garden.
The extraordinary conglomeration of different architectural styles of the spa garden's buildings and the surrounding mansions bestowed Bad Oeynhausen the unofficial title "Museum for the Architecture of the 19th Century".
One of the most famous buildings, the "Farne-Villa" was replaced by a new building in 1969.
In the first half of the 20th century additional thermal salt springs were drilled. Among these the Jordansprudel, drilled in 1926, is best known and with a capacity of 6000 l/min and a total height of up to 40 m it is the world's highest carbonated thermal salt spring and de facto the town's landmark.
Under Nazi Germany, Bad Oeynhausen hosted a synod of the Confessing Church, as well as the home congregation to Jakob Emil Karl Koch, a leading member. The World War II tank factory of the town was bombed on 30 March 1945. Post-war, the town hosted the Control Commission for Germany – British Element (CCG/BE), the military government for the British Zone of Occupation and served as the British Army of the Rhine headquarters.
The town was returned to local control in 1954 and spa activities resumed. In 1973, the seven surrounding municipalities Wulferdingsen, Volmerdingsen, Werste, Eidinghaisen, Dehme, Rehme and Lohe of the former "Amt Rehme" were merged with Bad Oeynhausen into one commune. The "State-owned Spa Bad Oeynhausen" (German: Staatsbad), property of the state of North Rhine-Westphalia, was municipalised in 2004.