The area was first known as Sand Hill when it was settled by farmers in the late 18th Century. The present community grew up around the "Prospect" railroad station erected by the Louisville, Harrods Creek and Westport Railway c. 1872. The name referred either to the view from the top of the hill or the expected completion of the line (which – owing to the Long Depression – never did reach Westport and collapsed into bankruptcy in 1879). When the post office was established in 1886, the local postmaster named it Wilhoyte in his own honor, but the community corrected this within the month.
Although a few luxury residences existed in the area from the late 19th century and the Louisville Railway Company offered hourly electrified-rail trolleys along the former LHC&W line after 1904, it was largely agricultural until the mid-1960s when large, high-end subdivisions were built in the area, most notably Hunting Creek, which included a golf course. Prospect incorporated as a city in 1974.
There were 1,732 households out of which 38.0% had children under the age of 18 living with them, 76.3% were married couples living together, 4.4% had a female householder with no husband present, and 17.8% were non-families. 15.8% of all households were made up of individuals and 5.1% had someone living alone who was 65 years of age or older. The average household size was 2.69 and the average family size was 3.01.
In the city the population was spread out with 27.5% under the age of 18, 3.7% from 18 to 24, 23.3% from 25 to 44, 35.5% from 45 to 64, and 10.1% who were 65 years of age or older. The median age was 43 years. For every 100 females there were 97.2 males. For every 100 females age 18 and over, there were 94.8 males.
The median income for a household in the city was $111,170, and the median income for a family was $124,131. Males had a median income of $100,000 versus $42,159 for females. The per capita income for the city was $51,469. 1.5% of the population and 0.8% of families were below the poverty line.