The first European settlement of what is now Saratoga occurred in 1848, when William Campbell (father of Benjamin Campbell, the founder of nearby Campbell, California) constructed a sawmill about 2.5 miles (4.0 km) southeast of the present downtown area. An early map noted the area as Campbell's Gap. In 1851, Martin McCarty, who had leased the mill, built a toll road down to the Santa Clara Valley. The toll gate was located at the present day intersection of Big Basin Way and 3rd St., giving the town its first widely used name: Toll Gate. In 1855 the town received a post office under the name of McCartysville.

Industry soon sprang up: at its height the town had a furniture factory, grist mill, tannery, and a paper factory. To commemorate this newfound productivity, the town was renamed yet again in 1863, this time as Bank Mills. Shortly after this, however, a spring was discovered which had a mineral content similar to the springs at Saratoga Springs, New York. In 1865, the town received its final name, Saratoga. At the same time, a resort hotel was constructed at the springs, and it attracted tourists to the area until it burned down in 1903.

Saratoga then became quietly agricultural, along with much of the rest of the valley. A few vineyards and orchards from this period remain today. After World War II, the town quickly became urbanized, and it incorporated in 1956, mostly to avoid being annexed to San Jose. A slogan during the campaign to incorporate the city of Saratoga was "Keep it rural," according to historian Willys I. Peck. Today the city serves as a bedroom community for upper-middle class Silicon Valley tech workers.