While surveying the first state road through the Huron County wilderness in 1861, Rudolph Papst and George Willis Pack made camp here and found a much-used and badly damaged axe. At Pack's suggestion, Papst used the name "Bad Axe Camp" in the minutes of the survey and on a sign he placed along the main trail. By the time Papst returned from the Civil War, the name was on the map.

Bad Axe was incorporated as a village in 1885 with Septimus Irwin, its first settler, as president; and it was incorporated as Huron County's first city on March 15, 1905 with Joseph Fremont as the first mayor. Bad Axe celebrated its first 100 years as a city in 2005. It remains the county seat and is the largest community in Huron County as well as a commercial center for the upper Thumb area.