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The settlement was first granted the status of a town in 1287 by Ritter Heinrich II von Homburg. There was already an important bridge over the river here in 1289, which connected Hameln-Paderborn to Einbeck-Frankfurt. Around 1340 one of the Homburg Bodos was Lord of the Manor and originated a planned town with walls and towers. From him derives the town's name, which means "Bodo's Eyot".
In 1750, Baron Münchhausen, who was born in Bodenwerder, retired to his estate here and told his famous stories to his friends. He died in 1797 and is buried here. His house was acquired by the town in 1935 and was used as the town hall; a room containing a Münchhausen museum was added.
The Münchhausen museum and monument as well as his grave in the monastery church of Kloster Kemnade (de) are notable tourist attractions. There is also a Gothic church, Stadtkirche Sankt Nikolai (de). The town is surrounded by the remains of medieval fortifications.