What would become the City of Prosser was first surveyed in 1879 by Colonel William Farrand Prosser who was serving as a special agent for the U.S. Department of Interior for Oregon and Washington. In 1882 he made a homestead claim and in 1885 filed a town plat. Development began around 1887 when Lewis Hinzerling built a flour mill. The Prosser Falls Land and Irrigation company built an irrigation canal in 1893. Prosser was incorporated in 1899. When Benton County was created in 1905, Prosser was designated the county seat.
Lewis Hinzerling built a flour mill at Prosser falls in 1887, encouraging further settlement of the area. The first irrigation canal was completed in 1893 by the Prosser Falls Land and Irrigation Company. Prosser was officially incorporated in 1899 with a population of 229 people. 
In 1905, Benton County was carved out of the eastern portions of Yakima and Klickitat Counties. The new town of Prosser was chosen as county seat. In 1907 a power plant was added and began delivering electricity to the town. The following year, a new high school was built, followed a year later by a telephone exchange. In 1910 the city received a grant from the Andrew Carnegie for a public library.
Throughout the 1910s and 1920s various companies drilled in this area for oil and natural gas. There were no large findings and the Great Depression put an end to exploration.
On November 5, 1912, Benton County voters held a referendum to move the county seat from Prosser to either Kennewick or Benton City. Intense rivalry and war of words between Benton City, Kennewick, and Prosser preceded the vote. Despite getting a majority of the vote, Kennewick did not receive 60 percent of the vote as required by law. To date, Prosser remains the county seat.
In 1919, Washington State College (later WSU) established the Irrigation Experiment Station at Prosser. The program's mandate is to study the problems faced by farmers, orchardists, and ranchers in the dry central part of the state. The station originally employed scientists from the college in Pullman, who partnered with scientists from the Washington State Department of Agriculture (WSDA) and the United States Department of Agriculture (USDA). The station is still currently in use, and offers a number of agricultural education programs.
Prosser at one point had three newspapers, which were consolidated in the 1920s into the Prosser Record-Bulletin, and a permanent courthouse was built in 1926. The Benton County Historical Museum was dedicated in 1968.
In more recent years, Prosser's location on a major river (the Yakima) and highway access has encouraged a growing wine business and associated tourist industry. Several Prosser wineries are located within the Yakima Valley appellation.