Somerset was first settled in 1798 by Thomas Hansford and received its name from Somerset County, New Jersey. Somerset became the county seat of Pulaski County in 1802 and was incorporated as a city in 1887. A significant Civil War battle was fought at Mill Springs about 8 miles west of Somerset. Another, smaller battle, was fought nearby at Dutton's Hill.

The completion of Lake Cumberland in 1950 transformed Somerset from a sleepy rural community into one of the largest recreation centers in Kentucky, drawing more than 1.7 million visitors annually. Lake Cumberland is one of the largest man-made lakes in the world. Somerset is also near Cumberland Falls and the Big South Fork National River and Recreation Area.