The earliest documentation of Naila dates at 1.9.1343. The first settlements in the area around Naila probably happened between the 12th and 14th century. The name Naila first appeared as "Neulins" (and variations thereof), has its origins most likely in the meaning "Small new settlement".
Up until 1972 it was the seat of the then district of Naila. The village of Marxgrün incorporated to Naila in 1978.
After World War 2 the Iron Curtain, just 8 km north of Naila, cut off a large part of the market for the local industries. In 1979, the town was the landing site of the Strelzyk and Wetzel families' famous balloon escape from East Germany.