Sundance lies at the foot of Sundance Mountain, so named because the Sioux Indians held their councils and religious ceremonies here at Wi Wacippi Paha (Temple of the Sioux).

Sundance got its start in 1879, when rancher Albert Hoge set up a trading post. The town grew slowly until the 1950s, when Sundance Air Base arrived. A nuclear reactor (the only one in Wyoming) was built on the base, but was torn down when the base closed in 1968. The pipes, and other fittings were buried on the site in cylindrical tanks filled with concrete and then covered with a thick layer of dirt. Harry Longabaugh, better known as the "Sundance Kid", assumed his nickname after spending 18 months in the Crook County jail for horse stealing.