After the Second Peace of Thorn (1466) ending the Thirteen Years' War, the town of Löbau became Warmia administered and soon afterwards became a centre of local trade and commerce. As such it became one of the seats of the bishops of Warmia. In 1533 it was razed to the ground by a great fire mentioned by Erasmus of Rotterdam, but it was soon rebuilt and between 1535 and 1539 Nicolaus Copernicus lived in the local castle. In 1545 the town and the castle were yet again destroyed by a fire.
The town gained significant profits from the trade. In 1627 the castle was refurbished and became a Baroque style palace of Bishop Jan Zadzik. By 1640 construction of water works and sewers had been completed. The town was annexed by the Kingdom of Prussia in 1772 through the First Partition of Poland. Part of the Duchy of Warsaw (1807-13) during the Napoleonic Wars, the town was restored to the Kingdom of Prussia after the dissolution of the duchy. In 1815 the palace was destroyed by a fire and in 1826 its walls were demolished. In 1871 it became a part of the Prussian-led German Empire. On January 19, 1920, following the Treaty of Versailles, the town was made part of the Second Polish Republic. During the Nazi occupation during World War II, it housed a German concentration camp for children. It was liberated on January 21, 1945.
Lubawa is an important centre of furniture industry. Also, a "Lubawa S.A." company is located there, which is the biggest Polish producer of military equipment such as bullet proof vests, currently used by the Polish Army and the Polish press.
Lubawa is a centre of local tourism. The "Wzgórza Lubawskie" forest reserve is located only some ten kilometres westwards and the picturesque Drwęca River flows some five kilometres to the west. Also, the nearby battlefield of the Battle of Grunwald attracts many tourists, both from Poland and from abroad, mostly from Germany.