Archaeology has shown continuous occupation of the site of Bad Tölz since the retreat of the glaciers at the end of the Ice Age. For example, there are finds from the Hallstatt culture as well as from Roman Raetia, or at least occupation by romanized Celts.
The name "Tölz" (as "Tolnze") appears relatively late in documentation at the end of the 12th century. The name "Reginried" appears as that of a settlement belonging to the monastery at Tegernsee in earlier texts, which is probably the same as Reid in the western part of Mühlfeld.
Hainricus de Tolnze built a castle on the site, which controlled the river and road traffic in the region but which no longer exists. In 1331, Louis IV made Tölz a market town.
The 14th century saw Tölz become a crossroads for the salt and lumber traffic on the Isar. In 1453, the market street, church, and castle were destroyed by fire. Duke Albrecht III enabled the city to rebuild, but this time in stone. He also built a palace which stood until 1770, when it fell into disrepair and was eventually undermined by the Ellbach.
The Thirty Years' War (1618–1648) brought plague and destruction to the region. During the War of the Spanish Succession things began to turn around again, with trade in lime and wood products, among other items. During this war, in 1705, the vintner Johann Jäger of Tölz led a band of farmers to battle at Sendling (south of Munich). The town also became known as a pilgrimage site; every November 6, there is a festival to Saint Leonard of Noblac. In 1718, a chapel was built in his honor on the Calvary hill.
In the middle of the 19th century, Tölz changed direction with the discovery of natural springs. The town began to focus on the healing properties of these springs and became a cure and spa town. In 1899, it became known as Bad Tölz.