In 1827, while the territory was under Portuguese dominion, the Portuguese asked their ally, General Fructuoso Rivera to establish a military body of cavalry and artillery in the area of Paso del Durazno on the banks of Río Yi. For this, the town of San Pedro del Durazno was founded, named after the regent of Brazil. In 1828 the department named "Entre Ríos Yí y Negro" was formed, which was soon after renamed to Durazno. When the First Constitution of Uruguay was signed in 1830, Durazno was one of the nine original departments of the Republic.
The economy of Durazno largely depends on agriculture and agrotourism. The raising of sheep, and of cattle, both dairy and for beef are of great importance. The Rural Society of Durazno groups together many of the landowning businesses in the department.
In the 1930s the Government of Gabriel Terra undertook considerable hydroelectric development in the department.