Nashua was formerly part of a 200-square-mile (520 km2) tract of land in Massachusetts called Dunstable, which had been awarded to Edward Tyng of Dunstable, England. Nashua lies approximately in the center of the original 1673 grant. When New Hampshire separated from Massachusetts in 1741, the state line between them was redrawn. As a consequence, the township of Dunstable was divided in two. Tyngsboro and some of Dunstable remained in Massachusetts, while Dunstable, New Hampshire was incorporated in 1746 from the northern section of the town.

Located at the confluence of the Nashua with the Merrimack River, Dunstable was first settled about 1655 as a fur trading town. But like many 19th century riverfront New England communities, it would be developed during the Industrial Revolution with textile mills operated from water power. By 1836, the Nashua Manufacturing Company had built three cotton mills which produced 9.3 million yards of cloth annually on 710 looms. Six railroad lines crossed the mill town, with 56 trains entering and departing daily before the American Civil War.

On December 31, 1836, Dunstable was renamed Nashua after the Nashua River by a declaration of the New Hampshire legislature. The Nashua River was named by the Nashuway Indians, and in the Penacook language it means "beautiful stream with a pebbly bottom."

The town split in two for eleven years following a tax dispute in 1842 between the area north of the Nashua River, where most of the wealthy lived, and the area south of the river. During that time the northern area called itself Nashville, while the southern part kept the name Nashua. They would eventually reconcile and join together to charter the city of Nashua in 1853.

Like the rival Amoskeag Manufacturing Company upriver in Manchester, the Nashua Manufacturing Company prospered until about World War I, after which it began a slow decline. Water power was replaced with newer forms of energy to run factories. Cotton could be manufactured into fabric where it grew, saving transportation costs. The textile business started moving to the South during the Great Depression, with the last mill closing in 1949. Many citizens were left unemployed. But then Sanders Associates, a newly created defense firm that is now part of BAE Systems, moved into one of the closed mills and launched the city's rebirth. The arrival of Digital Equipment Corp. (now part of Hewlett-Packard) in the 1970s made the city part of the Boston-area high-tech corridor.