The town of Rosalia appeared as a result of the 1871 Indian Appropriations Act which moved the tribes onto reservations as wards of the federal government and opened Eastern Washington to the many settlers streaming in from the East. One year later in 1872, the town of Rosalia was established. The first settlers in the area were Mr. Daily and Mike Miller.

Soon after Daily and Miller arrived, the Donahoe brothers, Tom and William, took up homesteads about one mile southeast of the Steptoe Battlefield. The story goes that these brothers were on their way to the mines in Kellogg, Idaho and met John and Rosalia Favorite. They decided to contact someone in Washington D.C. and ask permission to start a town. Permission was granted and the town was named in honor of John’s wife Rosalia.

Homesteaders arrived by wagon train on the Old Territorial Road that still passes through town (now Whitman Street). Supplies for the early settlers were purchased from Walla Walla, a ten-day trip from Rosalia. The U.S. Post Office, started by John Favorite in 1872 and still operating today, was the focal point of mail delivery in the area and pony express was the delivery method. The usual carrier was Glid Holbrook who, while traversing his mail route, rode his pony far enough to travel the world twice.

Another early settler was Mumm who arrived from Germany in 1880, bought a homestead to farm in Rosalia. Eventually his farm became a showplace; he planted two large groves of trees comprising over forty varieties that he nurtured and shared with others. Many of the old trees in Rosalia today came from Mumm’s nursery stock. In fact, Mumm’s the word for the legal description for many homes and businesses in Rosalia, identifying property under the name of "Mumm’s Addition."

As time went on, railroads played a significant role in historical settlement of the Inland Empire. Three to four different railroads served the northern communities of Whitman County. Beginning in the summer of 1886, the Palouse branch of the Northern Pacific Railroad reached Rosalia and built the first grain warehouse in town.

During the 1880s Rosalia became a thriving community of 800-900 people several years before Washington State joined the Union in 1889. Several business founded during these years still exist today. The Christian Church founded in 1887, and the Riggs Pioneer Cemetery was founded in 1878.

Besides its small-town atmosphere, Rosalia still celebrates its territorial history by having an Annual Battle Days Celebration, the first weekend in June, in recognition of the Steptoe Battle.