A large boulder near the mouth of Sexton Creek in the southern part of the county is known locally as Boone's Rock because it was noted as a landmark by Daniel Boone on a 1784 survey of land for James Moore and Col. John Donelson. Early permanent settlers of the area included James Moore and his family, who established Moore's Station, also known as Boone's Station, at Boone's old campsite. John Renty Baker and John Abner arrived by boat in the 1790s and settled near Cortland in the southeastern part of the county. The population of the area grew steadily. Parts of Owsley County went to form Jackson County in 1858 and Wolfe County in 1860.

During the Civil War, most Owsley Countians were pro-Union, although there were 112 slaves in the county in 1860. Owsley County led all Kentucky counties in the percentage of 1860 voters who enrolled in the Union army: slightly over 13 percent. Many men from the county enlisted in Company A of the 7th Kentucky Infantry Regiment, which was organized by Elisha B. Treadway at Congleton Springs (now in Lee County). Several times during the conflict, armies passed through the county, among them the Union command of Gen. George W. Morgan as it retreated from the Cumberland Gap to Greenup, Kentucky, in the late summer of 1862. Bands of lawless men rode into the county and in reprisal Owsley County men led similar raids into Wolfe and Breathitt counties. After the war, the county became identified with Republican politics, and because the Democratic party controlled state government during Readjustment, Owsley County reaped few benefits. Part of the county was split off in 1870 to form Lee County.

As it had scant mineral reserves, the county did not attract significant railroad transportation. A narrow-gauge line, the K&P Lumber Company Railroad, was built from Tallega in Lee County to a lumber mill at Lerose in the northeastern part of Owsley County in 1905. By 1909 most of the large timber near the line had been hauled out and the line was abandoned. The iron rails were taken up for scrap in World War I. A standard-gauge line, the Kentucky, Rockcastle, & Cumberland Railroad, which crossed the northwestern corner of the county along Wild Dog Creek, was abandoned by 1930.

By 1930 most of the timber had been removed and with it the economic lifeblood of the county. Mills closed, and after 1940 migration started to depopulate the county. Unrestricted clearing of steep slopes led to erosion of farmland. Extensive federal and state aid helped to maintain the standard of living in the county. Often unemployed county youth joined the military, and the rural county furnished large numbers of men to the Korean and Vietnam wars.

By 1989 Owsley County had the lowest per capita income in the state; 53 percent of the population were below the poverty line. In 1989 most employed residents worked in service occupations, government positions, or agriculture.

The population of the rural mountain county was 5,023 in 1970; 5,709 in 1980; and 5,036 in 1990.

There were courthouse fires in January 1929 and January 1967. All records were destroyed in the 1929 fire.