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The earliest recorded use of the name was in AD 940 as Dorseteschire, meaning the dwellers (saete) of 'Dornuuarana' (Dorchester), the place of fisticuffs (Welsh: 'Dwrn', 'fist'; and 'gwarae', 'play')

The first known settlement of Dorset was by Mesolithic hunters, from around 8000 BC. Their populations were small and concentrated along the coast in the Isle of Purbeck, Weymouth and Chesil Beach and along the Stour valley. These populations used tools and fire to clear these areas of some of the native Oak forest. Dorset's high chalk hills have provided a location for defensive settlements for millennia, with neolithic and bronze age burial mounds on almost every chalk hill in the county, and a number of iron age hill forts, the most famous being Maiden Castle. The chalk downs would have been deforested in these times, making way for farmland.

Dorset has many notable Roman artefacts, particularly around the Roman town Dorchester, where Maiden Castle was captured from the Celtic Durotriges by Vespasian in 54 AD, early in the Roman occupation. Roman roads radiated from Dorchester, following the tops of the chalk ridges to the many small Roman villages around the county. In the Roman era, settlements moved from the hill tops to the valleys, and the hilltops had been abandoned by the 4th century. A large defensive ditch, Bokerley Dyke, delayed the Saxon conquest of Dorset from the north east for up to two hundred years. The Domesday Book documents many Saxon settlements corresponding to modern towns and villages, mostly in the valleys. There have been few changes to the parishes since the Domesday Book. Over the next few centuries the settlers established the pattern of farmland which prevailed into the 19th century, as well as many monasteries, which were important landowners and centres of power.

In the 12th century civil war, Dorset was fortified with the construction of the defensive castles at Corfe Castle, Powerstock, Wareham and Shaftesbury, and the strengthening of the monasteries such as at Abbotsbury. In the 17th century English Civil War, Dorset had a number of royalist strongholds, such as Sherborne Castle and Corfe Castle, which were ruined by Parliamentarian forces in the war. In the intervening years, the county was used by the monarchy and nobility for hunting and the county still has a number of Deer Parks. Throughout the late Medieval times, the remaining hilltop settlements shrank further and disappeared. From the Tudor to Georgian periods, farms specialised and the monastic estates were broke up, leading to an increase in population and settlement size. During the industrial revolution, Dorset remained largely rural and still retains its agricultural economy. The Tolpuddle Martyrs lived in Dorset, and the farming economy of Dorset was central in the formation of the trade union movement.

Most of Dorset's landscape falls into two categories, determined by the underlying geology. There are a number of large ridges of limestone downland, much of which have been cleared of the native forest and are mostly grassland and some arable agriculture. These limestone areas include a band of chalk which crosses the county from south-west to north-east incorporating Cranborne Chase, the Dorset Downs and Purbeck Hills. Between the areas of downland are large, wide clay vales (primarily Oxford Clay with some Weald Clay and London Clay) with wide flood plains. These vales are primarily used for dairy agriculture, dotted with small villages, farms and coppices.