The town began when E.W. Thompson, who lived near the springs, operated a sawmill to the north, near the Book Cliffs. Soon a small community grew up called Thompson Springs, made up of small-scale farmers, sheepherders, and cattlemen.
However, there was one ambitious man in the area named Harry Ballard, an Englishman, who had plans of grandeur. A successful sheep and cattleman, Ballard began to buy up much of the property that surrounded Thompson Springs, and before long, owned a hotel, store, saloon, a several homes in the small settlement.
Soon, the little community was large enough to convince the Denver and Rio Grande Western Railroad, which had been completed through the region in 1883, to add a stop in the settlement, Cattle and sheepmen welcomed the railroad, which soon became a small shipping point for their stock.
Thompson gained importance in the early twentieth century due to the development of coal mines in Sego Canyon, north of town. Commercial mining in Sego Canyon began in 1911, and that year the Ballard and Thompson Railroad was constructed to connect the mines with the railhead at Thompson.