Xhosa groups moved into the area in the first millennium CE. Missionaries arrived in the area in the 1830s from the Berlin Missionary Society, followed by German settlers from the 1850s, and further waves of English colonists later on.
The town was originally named for Baron Richard Carl Gustav Ludwig Wilhelm Julius von Stutterheim, who became a major-general in the British Army as the head of the British German Legion and spent eight months in South Africa before returning to Germany. It was later renamed Dohne after the first missionary in the area, Jacob Ludwig Döhne, but in 1857 it was reverted to its previous name, with the name Döhne referring only to a small station nearby.
The Cape Colony received a degree of independence in 1872 when "Responsible Government" was declared and, in 1877, the government of Prime Minister John Molteno began construction of the railway line connecting Stutterheim to East London on the coast. This was officially opened in August 1878, and led to significant growth and economic development in and around the town.
On 20 May 1879 Stutterheim was proclaimed a municipality. Today Stutterheim is part of a much larger municipality named Amahlathi Local Municipality.