Ōtsu, meaning "big port", was a center of inland water transportation since ancient times. The city was an important port on Lake Biwa, and a center of trade by water and land to other areas of Japan. Ōtsu was part of Ōmi Province, an old province of Japan until the modern period. The port is referred to in the Man'yōshū as Shiga no Ōwada and Shigatsu. In the years 667 to 672, the Ōmi Ōtsu Palace was founded by Emperor Tenji (626–672). The Jinshin War devastated the Ōmi Ōtsu Palace, and Ōtsu was renamed Furutsu. A new capital, Heian-kyō, (now Kyoto), was established in the immediate neighborhood in 794, and Ōtsu was revived as an important traffic point and satellite town of the capital. With the establishment of the new capital, the name of the city was restored to "Ōtsu".
Ōtsu prospered during the Edo period (1603–1868) because of the port on Lake Biwa and for its role as a shukuba, or post town (see also Ōtsu-juku). The city was under direct administration of the Tokugawa shogunate, both for its strategic location and for its role as a center of travel and trade. Two of the Gokaidō, or five routes that connected the capitol at Edo (now Tokyo) with other parts of Japan, converged in Ōtsu: the great Tōkaidō connecting Edo with Kyoto, the Nakasendō connecting Edo with Kyoto via an inland route. Additionally, the ancient Hokurikudō, which connected Kyoto to the provinces of northern Honshu, ran through Otsu. The Tokugawa shogunate established several han domains in the Ōtsu area. The Zeze Domain was based in Zeze, a neighboring castle town of Ōtsu-juku, and the smaller Katada Domain occupied the northern area of the present-day city.
The Meiji Restoration of 1868 saw the establishment of a new central government in Tokyo and the abolition of the han system. Numerous prefectures under control of the Meiji government were created, and part of the old province of Ōmi was designated as Ōtsu Prefecture in 1868. Several smaller prefectures were merged into Ōtsu Prefecture in 1871, which became part of present-day Shiga Prefecture on January 1, 1872. Ōtsu, then a town, was named the prefectural capital of Shiga.
The Ōtsu incident, a failed assassination attempt on Tsarevich Nicholas Alexandrovich of Russia (1868 – 1918, later Tsar Nicholas II), occurred on 11 May 1891. Nicholas, returning to Kyoto after a day trip to Lake Biwa, was attacked with a saber by Tsuda Sanzō (1855 – 1891), an escort policeman. Nicholas survived the assassination attempt, but the incident caused national outcry against Tsuda and was seen as a crisis in Japanese-Russian relations.
The Lake Biwa Canal (8.7km) was constructed in the 1890s between Ōtsu and Kyoto. The canal, which was later expanded during the Taishō period, played an important role in connecting the cities, facilitating water and passenger transportation, and providing electrical energy to power Japan's first streetcar railroad services. The canal was designated a Historic Site in 1996.
Ōtsu was incorporated as a city on October 1, 1898. On March 20, 2006, the town of Shiga (from Shiga District) ceased to exist after merging into Ōtsu.