Leavenworth was officially incorporated on September 5, 1906. A small timber community, was located across the Wenatchee River from Icicle and was named Leavenworth the same year the rail construction began. Captain Charles Leavenworth, president of the Okanogan Investment Company, purchased the land in the present-day downtown and laid the streets parallel to the new railroad tracks. Lafayette Lamb and his brother, Chauncery Lamb arrived in 1903 from Iowa to build the second largest sawmill in Washington state.

Leavenworth struggled until 1962, when the "Project LIFE", known as "Leavenworth Improvement For Everyone Committee" was formed to transform the city into a "Bavarian village" to revitalize its economy. Leavenworth's annual Oktoberfest celebration is claimed to be one of the most attended in the world outside Munich, Germany. Leavenworth's transformation into a theme town was inspired by, and assisted by Solvang, California.

Leavenworth is home to the Leavenworth Nutcracker Museum, which opened in 1995 and contains more than 5,000 nutcrackers dating from prehistoric to modern.