Somerset was first settled in 1798 by Thomas Hansford and received its name from Somerset County, New Jersey, where some of the early settlers had formerly lived. Somerset became the Pulaski County seat in 1801, and was incorporated as a city in 1887.

A Civil War battle was fought in January 1862 at Mill Springs (now "Nancy") about 8 miles (13 km) west of Somerset, and a museum is at the site. A smaller battle was fought nearby at Dutton's Hill in 1863. In 1875 tracks for the Southern Railway were completed and Somerset saw a population growth and an increase in industry.