The town of Montello was established in 1904 as a "division point" (operations base) for the Southern Pacific Railroad. Montello's development was prompted by the construction of the Lucin Cutoff across the Great Salt Lake in Utah, a line that bypassed the area's former division point town of Terrace, Utah. Many of the original houses in Montello were moved there from Terrace and nearby Kelton, Utah. Montello was originally named "Bauvard," and received its current name in 1912. The word "Montello" means "rest" in the Shoshone language.
Montello was at its peak in the 1910s and early 1920s, with a population of perhaps 800. While the town's economic life was dominated by the railroad, it also served as a community center for local ranchers and as a supply point for the nearby mining camp of Delano. Montello began declining in the late 1920s, however; railroad employment began to lessen and a 1925 fire devastated the town's business district. The primary factor in Montello's decline, though, was the railroad's shift from steam to diesel locomotives, which took place in the 1940s and early 1950s. This rendered the servicing facilities at Montello obsolete, and they were removed by the Southern Pacific in the 1950s.