The history of Monticello begins in 1822 with the arrival of Quaker George Haworth. Haworth had come to the area to serve as a liaison agent for the United States government and the local Native American tribes. With the help of the local Native Americans, Haworth constructed a small log cabin. Haworth soon left the area and in the spring of 1829, James A. Piatt purchased this cabin for his family's residence. Shortly after Piatt's arrival, more settlers began making the area their home. In 1837, the residents decided that Decatur was too far to conduct business and the idea of a new town developed.

Abraham Marquiss, William Barnes, Major James McReynolds, and James A. Piatt Jr. formed a joint stock company and purchased the land from James A. Piatt. Major McReynolds decided upon the name of Monticello, naming it after the home of Thomas Jefferson, whom he greatly admired. The town plat was officially recorded on July 1, 1837 in Macon County. A celebration was held on July 4 and $2700 worth of land was sold.

Mr. Cass built the first building in the new town in 1837 which served as his home and a small grocery store. In 1839, Nicholas DeVore built the "Old Fort" which served as his home and later a hotel. The second house was a log cabin built by John Tenbrooke and also served as a hotel. Monticello continued its building efforts and the population increased during the next few years.

The citizens of Monticello and the surrounding areas began to complain about the distance required to travel to Decatur (the county seat) to attend to legal matters. After circulating petitions, George Patterson delivered them to the state legislature and on January 27, 1841 a new county was organized. The county was named in honor of early settler James A. Piatt. Monticello being the only established town at the time was named the county seat. The county began legal functions on April 5, 1841 and the first county court was held in the "Old Fort." In 1843, the first permanent courthouse was built on the Town Square on land donated by William H. Piatt.

Monticello secured a contract for a railroad between Champaign and Monticello in 1871. Following this event, Monticello was incorporated as a city in 1872.

One of the most important men in the history of Monticello arrived in 1885. Dr. William B. Caldwell came to practice medicine in Monticello but his homemade mixture of senna and pepsin brought Monticello to a level of national prominence. The Pepsin Syrup Company was founded in 1893, and became the leading employer in the city for decades.

The Huffman brothers arrived in the early 1880s and brought drastic changes for Monticello. They began the first water works system in the town and opened a foundry, which produced iron allowing the townspeople to build larger blocks of buildings.

By the end of the nineteenth century it was clear that the courthouse was becoming too small for the county's needs. On September 4, 1903 the cornerstone was laid for the current courthouse. The ceremonies attracted nearly 6,000 residents.

By the early 1990s, public attention shifted toward historic preservation. The City of Monticello applied and was accepted to become a Main Street Community. This program was developed the National Trust for Historic Preservation and advocates regeneration of historic downtown areas throughout the United States. As a result of this program several properties have restored their facades to their original condition.

In 1998, North State Street was designated a historic district with the National Register of Historic Places.