Kooskia was named for what is now the Clearwater River.  The Nez Perce called it Koos-Koos-Kia for the river's transparent quality.  The town site was surveyed in 1897 and was originally known as Stuart. There was a tram from Kooskia's flour mill to the Camas Prairie grain fields from 1903 to 1939. The tramway had two cables running the entire length of a mile and a quarter which carried thirty buckets.

The town of Kooskia was established in 1895, when the government set aside 104 acres for town site purposes. Kooskia began its existence as Stuart when the town site was surveyed in 1897. The town was first named for James Stuart, a Nez Perce surveyor and merchant.

The Post Office was established as Stuart on May 25, 1896. The first newspaper, called the Alta Idaho Area Paper, was printed January 1, 1898. On April 16, 1902, the first issue of the Kooskia Mountaineer was off the press.

The railroad track was laid into Kooskia on March 13, 1900. In 1900 the town was called Stuart but the railroad depot was called Kooskia as dubbed b y the railroad. The town changed its name from Stuart to Kooskia to coincide with the railroad depot on April 14, 1902. The town name is a contraction of the Kooskooskia, meaning "where the waters meet". that appears in the journals of Lewis and Clark in 1805 to designate the river now named the Clearwater River.

Kooskia lies in two areas along the Southfork and the Middlefork of the Clearwater River separated by a "hogback", an extension of Mount Stuart. The area along the Middlefork was designated for the natives and the area along the Southfork for the new settlers.

Kooskia was known among western horsemen, during the 1900s as the home of the Decker saddle. The saddle was developed by Oliver P. Robinett, a blacksmith and packer in 1906.