The town was surveyed and laid out in 1855 and named after a Colonel Lacy Yea who was killed in the Crimean War. Town lots went on sale at Kilmore the following year. Settlement followed and the Post Office opened on January 15, 1858.
When gold was discovered in the area in 1859 a number of smaller mining settlements came into existence, including Molesworth. Yea expanded into a township under the influx of hopeful prospectors, with the addition of several housing areas, an Anglican church (erected in 1869) and a population of 250 when it formally became a shire in 1873.
What later became the railway to Mansfield arrived in 1883, with an extension to Molesworth in 1889, chiefly for timber transport to Melbourne. Running steam trains, the train service cut through steep hills and undulating country to connect the shire with the main city. The line was closed on November 18, 1978, with the last passenger service running on May 28, 1977. Although much of the railway property has been appropriated by nearby farmland, the original tracks and crossings may be still be discerned across the countryside, and the railway station, built in 1889, has now been converted to a Heritage Information centre.
Yea was promoted as something of a tourist centre in the 1890s with trout being released into King Parrot Creek to attract recreational anglers. A Post Office was built in 1890, followed by a Grandstand and a Butter factory (now Cheese factory) in 1891. There was a proposal in 1908 to submerge the town under the Trawool Water Scheme but it never went ahead.
By 1911 the town's population had increased to 1126 and has remained relatively stable, despite two severe floods in 1934 and 1973 and a major conflagration in 1969. The Limestone Road Baragwanathia fossil site has been registered in the National Estate due to the discovery of the most ancient leafy foliage so far found on earth.