Due to springs that provided water all year long, Indians first referred to this area as "Summer Springs". In 1851, this resource was recognized by David Fairbanks (who was to become LDS Bishop at nearby Peteetneet Creek/Payson) and David Crockett, who realized that a stream through a natural channel could be dammed to conserve water. They brought their families and built the dam, before growing the first crops in what became known as "Pond Town". By winter, however, hostile Indians became a threat and the settlers returned to Payson. The next year, Fairbanks and Crockett returned to build a second dam, but the settlement was again abandoned.

In 1856, settlers from nearby Palmyra relocated to Pond Town after an unsuccessful battle against drought and alkaline soil. They built a new irrigation system and homes of adobe and lumber, designed as a fort in order to provide protection from Indians. A town was soon laid out, and other settlers arrived.

In 1869, a new canal was completed from the Spanish Fork River to provide water to town. It was called the Salem Canal, and the town too was renamed Salem, after New Salem, Massachusetts, birthplace of Lyman Curtis. Curtis was one of the original settlers from 1856, who was also responsible for directing the canal project. Salem gained its first post office in 1872, and in 1877 the Salem Ward of the Church of Jesus Christ of Latter-day Saints was established (prior to this, it was served by the Provo Stake). Popular crops at Salem included wheat and grains, tomatoes and peas (processed at the Del Monte plant near Spanish Fork), and beginning in 1891, sugar beets were grown for factories throughout the Utah Valley. The Town of Salem was officially incorporated in 1886.

By the turn of the century, Salem reached a population of over 800. It continued to thrive as an agricultural community, though the population settled at just above 600 by 1910, where it stayed for several decades. Businesses included the Salem Mercantile Company, a barber shop, drugstore, and saloon, later joined by service stations and a motel along Highway 91. The City of Salem was incorporated on May 10, 1920.

Beginnning in the 1950s, Salem again began to grow. In 1956, a second LDS ward was established. Today, the population of the city has grown to over 8000. While it lacks a distinct commercial district like many cities in Utah Valley, Salem has a peaceful atmosphere of wide streets lined with trees and attractive homes, punctuated by the serene pond for which it owes its existence.