Long before the first settlers began arriving, the area was populated by the Molalla Indian Tribe. As settlers arrived, the community grew around the crossing of two Indian trails. Descendants of the Molalla tribe are now part of the Grande Ronde Confederated Tribes in western Oregon. Efforts of the City of Molalla and Molalla River School District in conjunction with tribal efforts hopefully will bring a Tribal presence back to the Molalla area. Seeking fertile soils, ample water and rich grasses, pioneers were attracted to the Willamette Valley. William Russell filed the first land claim in the area in 1840. In 1850, a post office was opened and the community started to grow. By 1856, the first schools were operating and the town had become a thriving timber, agricultural, and trade center. The year 1857 brought the first general store.
The year 1913 was a year of "firsts" for Molalla. It welcomed the first steam train, the first Molalla Buckeroo Rodeo, the first bank, the first locally published weekly newspaper, and the incorporation of the City. Over the years, lumber production became the community's largest commodity. At one point, five saw mills operated in Molalla. Timber remained the mainstay of the community's economy until the 1980's.