The area of the town was first settled around 1763, and the region was then called "Schoharie Kill". An attempt during the American Revolution by the British and their Loyalist allies to drive the settlers out was thwarted when they were defeated by the settlers.
Prattsville was established in 1824 from the town of Windham. Some of the town was lost to form the town of Ashland in 1848.
Prattsville was later named after Zadock Pratt, a congressman and prominent citizen. Pratt built a tannery larger than any other in the world at the time, helping it become a major town in upstate New York. His life is depicted through a series of stone carvings called Pratt Rock which he commissioned during his lifetime.
The 1830 population of the town was 830. When Pratt built his tannery, it created a vast number of jobs, and the population grew to 1,989 by 1850. However, by 1845 all of the hemlock bark had been non-sustainably extracted from the forests for 10 miles (16 km) around, and Pratt was forced to close the tannery. No Hemlock re-plantings had been undertaken by Pratt. The jobs that were lost could not be replaced, and the town's population dwindled to 1,314 by 1875. The Old Episcopal Manse was added to the National Register of Historic Places in 2000, and the John and Martinus Laraway Inn was added in 2012.
On August 28, 2011, Hurricane Irene caused record flooding in the town by Schoharie Creek, causing major damage and destroying large areas of the town. Every structure on the strip that comprises Main Street was partly or fully destroyed, including all 22 of the town's businesses. Eleven houses collapsed in the flood, fifteen were condemned and torn down, and more than 100 homes were so damaged that the residents couldn't return to them, but amazingly there were zero fatalities. It received widespread national news coverage because the town had nearly been washed away. Gov. Andrew M. Cuomo labeled Prattsville as the place in New York State hardest hit by the storm.