The village was recorded (combined with Up Hatherley) as Hegberleo in 1022. It was listed as Athelai in the Domesday Book of 1086. In 1273 it was known as Dunheytherleye and in 1221, Hupheberleg. The name derived from the Old Englishhagu-thorn + lēah meaning "hawthorn clearing". the distinguishing affixes "Up" and "Down" derived from the Old English upp meaning "higher upstream" and dūne meaning "lower downstream". Up Hatherley is a separate parish three miles upstream on the Hatherley Brook. Historic buildings include St Mary's Church (15th-century tower, otherwise rebuilt 1860) and Hatherley Court (or House) (17th century), now a hotel.
Jemmy Wood, The Gloucester Miser, was a former owner of Hatherley House and estate.