It was created in 1860 from the districts of Rauland in Vinje and Øyfjell in Lårdal as a border adjustment. The new municipality had a population of 988. On 1 January 1964, Rauland was incorporated into Vinje. Prior to the merger Rauland had a population of 1,656.
The municipality (originally a parish) is named after the old farm, Rauland (NorseRauðaland), since the first church was built there. The first element is the genitive case of rauði m 'bog-iron', the last element is land n 'land, farm'. (The many marshlands in the parish are filled with bog-iron, and for centuries its production was an important local resource.)