The town was founded in 1770 by Carlos Murphy, a grenadier in the service of King Charles III of Spain, although a first settlement existed here from the 17th century.
The city is the seat of the Roman Catholic Diocese of Caacupé. Caacupé is best known as the site of the Virgin of Caacupé, which is housed in the cathedral. A major religious festival is held annually on 8 December in honour of the statuette "Our Lady of the Miracles". This statuette, carved in the 16th century by a devout convert, was miraculously saved from a great flood, and numerous miracles are ascribed to it. An enormous basilica stands in the centre of the town, and here 300,000 of the faithful make their way, in a pilgrimage, for the festival.
During the rest of the year Caacupé is a quiet provincial town. It has a park with amusements.