The name means 'confluence of the Leithen' in Scottish Gaelic - Inbhir Leithen, anglicised to Innerleithen. The Tweed flows here roughly west to east; the Leithen Water comes down from the hills to the north and joins it. The prefix Inver- or Inner-, meaning river mouth or confluence, is one of the most common in Scottish place-names. Inverness, Inverurie, Innerleithen - all of them mark places where one water joins another. The town sits in an inverted T shape, with one arm running north up the Leithen valley and the other east-west along the Tweed's flood plain. The hills crowd close: Lee Pen rises 502 metres directly to the north, Pirn Craig to the east, and beyond the Tweed to the south the long ridge of Plora Craig climbs sharply from the southern bank. It is a town shaped by what surrounds it.

Local tradition has it that a son of King Malcolm IV drowned in a deep pool where the Leithen meets the Tweed, while staying at Traquair House on a royal hunting trip in the 12th century. The locals recovered the body and brought it to the church for proper burial. The king, in gratitude, granted the church and its land the right of sanctuary. The pool is still called the Droont Pool. There is a problem with the story: Malcolm IV is reported to have died childless at the age of twenty-five. So whose son was it? Perhaps a younger relative, perhaps the story is older than Malcolm and got attached to his name, perhaps it never happened at all. The right of sanctuary, however, was real - it appears in 12th-century records and gave the parish a particular legal standing for centuries afterwards.

In 1824, Sir Walter Scott published a novel called St Ronan's Well, set in a thinly fictionalised version of Innerleithen. The book made the town briefly famous as a spa - the mineral spring at St Ronan's Wells became a destination - and the local legends Scott had drawn on began to take on new life. In 1827 the town established the St Ronan's Border Games, an annual sporting meeting; in 1901, on the back of growing tourism, the Cleikum Ceremonies were instituted, a town festival reenacting the legend of St Ronan banishing the devil by hooking him by the hind leg with a shepherd's crook. The Border Games are still the oldest organised sports meeting in Scotland. They happen every July, part of a ten-day festival the locals call Games Week, and they draw competitors and visitors from across the Borders.

The Industrial Revolution turned Innerleithen from a hamlet of Traquair parish into a town in its own right. Five wool mills - hosieries, the old word called them - clustered along the Leithen, producing knitted goods that made the town's fortunes. The population grew from 1,130 at the 1861 census to over 2,500 today. Caerlee Mills was the last of the five to survive, its workforce reduced to 33 after its owners JJ and HB Cashmere went into administration in 2010. It finally closed in April 2013, ending nearly two centuries of mill work in the town. By then, two new industries had begun to take its place: tourism, which had been growing since Walter Scott's time, and mountain biking, which arrived with the trails programme of the 1990s.

Innerleithen is one of the 7 Stanes - seven mountain bike trail centres established by Forestry and Land Scotland in the early 2000s across southern Scotland. Together with neighbouring Glentress, it forms one of the largest purpose-built MTB destinations in Britain. The town hosts downhill events with shuttle bus uplifts to the top of Plora Rig; riders plummet back down trails with names like Matador and Make or Break. The 'Golfie' trails in Caberston Forest, developed by local riders, have become some of the most technically demanding descents in the country. Above all of it climbs the long cross-country loop to Minch Moor, where on a clear afternoon you can see south across the Tweed valley toward England. The pilgrim monks came down the river. The mountain bikers now ride down the same hills. The names of the trails change, but the contour lines do not.