The first Europeans to explore the Katanning area were Governor James Stirling and Surveyor General John Septimus Roe who travelled through the area in 1835 en route from Perth to Albany.
In about 1870, sandalwood cutters moved into the area but they did not settle. It was not until the arrival of the Great Southern Railway from Perth to Albany in 1889 that the township came into existence.
The townsite was initially developed by the same company that built the railway, the Western Australian Land Company. The state government purchased the railway and the townsite in 1896 and later formally gazetted the town in 1898.
Katanning remains an important centre on the Great Southern Railway to Albany.
A roller flour mill, later known as the Premier Flour Mill, was constructed close to the centre of the town in 1891 by brothers, Frederick and Charles Piesse; this in turn encouraged the local farmers to grow wheat which was at the heart of the town's early economic success.
A railway line between Kojonup and Katanning opened in 1907
A railway line between Nyabing and Katanning opened in 1912 and extened to Pingrup in 1923 Making Katanning Railway yard a busy transport hub.