The town was incorporated in 1765, before the U.S. existed and Maine became a state. The town gets its name from a myth about one of the earliest town residents, Charles Belknap Tanner. He raised pigs, one of which was named Jerusalem. One day Jerusalem escaped from her confines and went into a nearby forest, and became an aggressive wild pig. Mr. Tanner began warning young children who trespassed on his property to "Keep 'ee out o' Jerusalem's wood lot," lest the pig eat their innards out. Eventually, the phrase "Jerusalem's Lot" was adopted as the town name.
Sometime between the town's incorporation and 1850, the Lot was abandoned. When aristocrat Charles Boone and his manservant Calvin McCann moved in to the nearby town of Chapelwaite of 1850 and went looking for the town, they found it deserted. There was evidence of a cult of witches in the town as well as a cult centered around the Other Gods---Boone and McCann found a copy of De Vermis Mysteriis ("the Mysteries of the Worm"). They also claimed to have found a gigantic wormish monster which they scared away by burning the book, as well as a walking (but dead) relative of Boone's, but in the letters that Boone wrote describing these events, he also made it clear (intentionally as well as unintentionally) that his mental state when writing the letters and during the described events was something less than sane. After writing the letters, he killed Mr. McCann and purportedly drowned himself.
For an unknown reason, people began inhabiting the town again after the supposed encounter with the monster. The exact date at which people began inhabiting the town again is unknown, but it is known that the town had a representative named Elias Jointner in the House of Representatives by 1896, when he had a town street named after him.