Jefferson County was created on December 12, 1914 from a portion of Crook County. The county owes much of its agricultural prosperity to the railroad, which links Madras with the Columbia River, and was completed in 1911, and to the development of irrigation projects in the late 1930s. The railroad was completed despite constant feuds and battles between two lines working on opposite sides of the Deschutes River.

Madras was incorporated in 1911, and has been the county seat since the creation of the county.

Rapid development in adjacent Deschutes County, Oregon during the 1990s has farmers in Jefferson County concerned that they may be priced out of their own farmlands, which could be replaced by destenaion resorts, golf courses, and other amenities for recent arrivals.