The city was named in 1900 during a meeting to establish a school district. While considering the possibilities, an individual looked at the stack of Winchester rifles stacked at the door and suggested the name, which was approved. It was settled by homesteaders who were lured to the area by the stands of timber. 

When the Craig Mountain Lumber Co. came in to begin logging operations in 1910, the town's businesses moved to the new site. 

A half mile (1 km) outside of town is Winchester Lake State Park, established in 1969. Originally it was a mill pond, created in 1910 by damming Lapwai Creek. Today the lumber mill is gone, but the 356 citizens survive on the business created by the State Park. 

The park covers nearly 300 acres and is the only State Park in the county.  The lake provides year round fishing, a boat launch, RV hookups, and cross country ski trails in winter.  The first weekend in July brings Winchester Days with its fireworks over the lake and other lively entertainments.  A museum is open summer Sundays.