West Lebanon was laid out & platted in the Fall of 1830 by Ebenezer Purviance, John G. Jemison, and Andrew Flemming, and consisted of 64 lots.  Originally named Lebanon, the name was changed to West Lebanon in 1869 when the town was incorporated, possibly in deference to a community in Boone County with the same name. The town's early years showed slow growth due to not being close to a water way, but in 1856 the Wabash Railroad line was completed just one mile north of town, leading to the town relocating closer to the station. The original settlement area then became known as Old Town.

United States Census Historical population shows a range in population in 1880 of 665 to high point of 946 in 1980 to today’s number of 723.

On January 26, 2011 a fire destroyed part of the Town’s business district - a row of buildings along the west side of High Street between North and First Streets.