Long before Christianity arrived in the Baltic, Otepää sat at the political center of Ugandi, one of the loose confederations of ancient Estonian tribal lands. The settlement began with natural fortifications on the hilltop and grew into something more deliberate, with walls, watchtowers, and a trading post that linked Ugandi into the same Baltic-Scandinavian commerce that fed Novgorod. The wealth and influence of the nobles holding the castle came from long-distance trade, military reputation, and control over surrounding territories. Otepää's reach may have covered most of eastern Estonia. As the strongest fortress in the southeast, it played a decisive role in the constant skirmishes between Estonians and their neighbors, the Russians of Pskov and the Latgalians to the south. When the Crusaders arrived in the early 13th century, Otepää became a primary target.

The Northern Crusades brought the Brothers of the Sword and their allied bishops north, baptizing pagans by force or killing those who would not convert. They had taken Livonia and were pressing into Estonia. The fortress at Otepää was both a strategic objective and a symbol: take it and ancient Estonia's spine cracks. The Estonians fought back. Russian troops from Pskov also campaigned in the area, and the politics of the war shifted constantly. The 1217 victory at Otepää by the local Ugandi defenders is one of the few Estonian battlefield successes recorded in the chronicles of Henry of Livonia, the German priest who wrote the period's main source. It bought time. It did not buy freedom. By 1224 the Estonian resistance had been broken, and Otepää passed to the conquerors.

After Christianization, Otepää became a stronghold for the new Christian authorities in southern Estonia. For a brief period it served as the seat of the Bishop of Estonia, a center of papal power on what had so recently been pagan ground. The Crusaders began rebuilding the wooden hillfort into a stone castle, largely continuing local building techniques rather than imposing imported German methods wholesale. Some of the lower stone walls survive in Romanesque style, and these may be the oldest stone construction in the entire Baltic region. The castle changed hands repeatedly through the medieval centuries, was burned, was rebuilt, was burned again, until eventually nobody rebuilt it. By the time J.C. Brotze sketched the Baltic ruins in the 18th century, Otepää was already a remembered place rather than a working one.

What did not disappear was the town. Otepää at 60 meters above the surrounding plain has the highest reliable snowfall in southern Estonia and turned, over the 20th century, into the country's winter sports center. Tehvandi Sports Centre below the hillfort hosts the Tartu Marathon every February, the largest cross-country ski race in the Nordic countries by participation, drawing thousands of skiers along a roughly 60-kilometer course. The Otepää Cross-Country Ski Centre hosts FIS World Cup events. Andrus Veerpalu, the Estonian double Olympic gold medalist in cross-country skiing (2002 and 2006), trained on these trails. The old castle hill rises above the modern stadiums, its earthworks still visible, the Romanesque stone foundations still in place. The bears that gave the place its name are long gone from the surrounding forests, but the hill remembers them, and the skiers below the ruins remember the hill.