Osorno was founded by the Spaniards, led by the conquistador Pedro de Valdivia, in 1553 on the site of the small native village of Chauracaín. The original Spanish name was Santa Marina de Gaete.

The original settlement was abandoned, and was re-founded in 1558 by García Hurtado de Mendoza and called San Mateo de Osorno, in honor of his grandfather in Spain, the Conde de Osorno.

Destroyed by an Araucanian indian tribe in 1602, it was restored (1776-1796) on the orders of Ambrosio O’Higgins, an Irish mercenary and father of Bernardo O’Higgins.

At the end of the 19th century, a stream of German immigrants stimulated the growth of the town, which was boosted even further by the arrival of the train in 1895.