When the first local government acts were implemented in Sweden in 1863 Dorotea parish was made a rural municipality. In 1974 it was merged into Åsele Municipality. Already in 1980 it was split off, forming a new Dorotea Municipality. It is the third least populated municipality of Sweden.
Amongst the industries in the municipality is one of the biggest caravan manufacturers in Scandinavia, Polarvagnen, now known as SoliferPolar as it has merged with another company. Other known industries and companies are Dorocell, Svenska Tält and S-Karosser.
In more recent years, several IT-companies have also moved to the municipality. In early 2000 the company Spray was located here but then moved to Sollefteå. The large house which held the support department and other personnel was later taken over by Datakompisen.