The first historical mention of Macroom is in 6th-century records, when it was called Achad Dorbchon and sat inside the petty kingdom of Muscraighe Mitine. Tradition has it as a meeting place for the druids of Munster and a base for bardic conventions. Before then it was older still: the Knocknakilla megalithic complex, with its 3,500-year-old standing stones, lies just north of town, one of many Bronze Age sites that scatter the surrounding fields. The Eoganachta dynasty held the area until the O'Flynns commissioned a castle in Macroom to make it the capital of Muskerry. In 1201 and 1207 the Anglo-Norman invasions arrived, and after several turbulent decades the MacCarthys became dominant. They held Macroom Castle from 1353 until the mid-17th century. Under them the town became the capital of the Barony of Muskerry and one of Ireland's earliest milling centres.

By the mid-17th century, Anglo-Irish families owned about a third of the town by value. They introduced butter making, a labour-intensive industry that would sustain the area for two centuries. After the 1650 Battle of Macroom, when Cromwellian forces under Roger Boyle defeated an Irish Confederate army and captured Bishop Boetius MacEgan, the castle was given in 1656 to Admiral William Penn of the Royal Navy. His son, also William Penn, would later found Pennsylvania in North America. The MacCarthys lost everything during the Williamite wars of the 1690s. Authority over the castle waxed and waned between MacCarthys and Anglo-Irish families for the next two centuries. Macroom Castle was burned out on five separate occasions over four hundred years. The last burning came on 18 August 1922, when anti-treaty IRA volunteers retreated from Cork city and torched it before leaving.

The population fell sharply in the 1840s during the Great Famine. The town's workhouse, where the desperate came for thin gruel and a roof, is now the district hospital on the north side of New Street. A mass graveyard for the famine dead lies to the west near Clondrohid. During the War of Independence, Macroom was the main Cork base for the British Auxiliary Division. The IRA was highly active around Macroom, Bandon, and Dunmanway, and the area was described by RIC policemen as practically in a state of war. On 28 November 1920 the Kilmichael Ambush, on the road between Macroom and Dunmanway, killed sixteen Auxiliaries; the IRA suffered no casualties. After the ambush the British increased reprisals across mid-Cork, and martial law was declared. Two years later, Michael Collins was killed in an ambush at Beal na Blath, just east of town.

South of town stretches a landscape that exists almost nowhere else in Western Europe. The Gearagh is a national nature reserve on an inland delta, a network of small islands separated by anastomosing flat river channels. The site has been wooded since the end of the last Ice Age around 8,000 BC, with oak and ash forming the canopy for ten thousand years. In 1954 the Lee hydro-electric scheme led to extensive tree felling and flooding for a reservoir. About sixty percent of the original alluvial woodland was lost. Submerged houses are still visible from around Two Mile Bridge. What survives is the only extensive alluvial woodland in Western Europe, hosting 62 species of moss and liverwort, freshwater pearl mussel, Atlantic salmon, whooper swans, kingfishers, and otters. Marsh marigold and meadowsweet line the islands. Willows and alders have replaced some of the lost oaks.

From 1976 to 1982, Macroom hosted the Mountain Dew Festival, Ireland's first major rock festival. Up to 20,000 people came each year. The lineup included Rory Gallagher, Phil Lynott, Van Morrison, Elvis Costello, Marianne Faithfull, and Horslips. John Lydon of the Sex Pistols turned up as a visitor. The organisers were young local businesspeople trying to wake up an economically stagnant town. According to Martin Fitzgerald, one of them, the town needed a bit of shake rattle and roll to tempt not just international investors but Irish people to rest there a bit longer. A rock concert fitted the bill. It worked, briefly. Today the town's economy runs on dairy, especially the Danone milk processing factory that dries local milk into infant formula for a worldwide market. The town has produced a Eurovision singer (Bambie Thug, 2024), a chief of staff for British Prime Minister Keir Starmer (Morgan McSweeney), and a Victoria Cross winner from the First World War (Michael O'Leary). The 2016 census recorded 3,765 people.