The name of the municipality was derived from a traditional loom called "tagudan." A Spaniard who came to the place asking its name wrote it as its name when told by a resident, who thought that he was asking the name of the cloth-weaving apparatus she's using.
Another story is that the locals saw a Spaniard hide, so they started saying "Tagu din! Tagu din."
Tagudin was made the site of the Base Hospital of the United States Armed Forces in the Philippines-Northern Luzon (USAFIP-NL) in 1945 during World War II.
Tagudin was the site of the military general headquarters of the Philippine Commonwealth Army 1st and 12th Infantry Division and the USAFIP-NL 121st Infantry Regiments. They were stationed in the town and was active during World War II (1942 to 1945) and Post-War Era (1945 to 1946).