The area around Camrose was first settled by Europeans around 1900. At that time the nearby settlement of Wetaskiwin was a major centre for pioneers; typically, it was the last stopping-off point before they set out in search of nearby land. The site that was to be Camrose was about a day's journey from Wetaskiwin along the railroad, which made it a popular place on the route of pioneers. Soon businessmen and other settlers arrived to stay. The settlers came primarily from Scandinavian countries, such as Norway and Sweden, and many settlers also came from the United States. At that time the settlement was known as the hamlet of Stoney Creek. In 1904, Stoney Creek began receiving mail service, its first businesses began to open, and its first Royal Canadian Mounted Police (RCMP) officer (Constable "Blue" Smith) arrived.

On May 4, 1905, the community was incorporated as the Village of Camrose. There is no factual evidence about the reason for the choice of the name Camrose, but it is generally thought that it was named after the Village of Camrose in Pembrokeshire, South Wales. On December 11, 1906, Camrose was incorporated as a town.

In 1906, Camrose opened its first newspaper, The Camrose Mail, which was replaced in 1908 by the Camrose Canadian, which was published until 2018. In March 1907 the town erected a building for town administration, which also held its first police and fire station. In May 1907, it spent $10,000 on its schoolhouse. In October 1907 men from Alberta Government Telephones set up Camrose's first telephone exchange, and by 1908 about fifty residents had telephone access. 1911 saw the construction of Camrose's first power plant.

From 1905 to 1914, there was a great deal of railway construction in the Camrose area. Camrose became a bit of a railroad hub, sitting on railways that connected to Edmonton and Calgary, as well as many of the smaller towns in central Alberta, such as Vegreville, Stettler, Drumheller, and Wetaskiwin. By 1914, twelve passenger trains came through Camrose daily. In those days the growth of Camrose was strongly linked with the railway.

On June 26, 1912, the first building of the Camrose Lutheran College (known as Augustana University College from 1991 to 2004) was opened. Today the campus continues as the Augustana Faculty of the University of Alberta.

During World War II, the Camrose Fairgrounds were converted to an army training grounds. About ten H-Shaped huts were built, as were mess quarters, a medical building and a storehouse. Thousands of Canadian boys came to Camrose to receive their basic training.