Canmore was officially named in 1884 by Canadian Pacific Railway director Donald A. Smith (later 1st Baron Strathcona and Mount Royal). It was named after Malcolm III of Scotland who was also nicknamed Canmore. The name Canmore originates from the Gaelic ceann mòr, meaning "Big Chief".

In 1886, Queen Victoria granted a coal mining charter to the town, and the No. 1 mine was opened in 1887. By the 1890s, a North-West Mounted Police barrack had been instated on Main Street, but it was vacated in 1927. The building was restored in 1989 and it is under the care of the Canmore Museum and Geoscience Centre.

The coal mining industry in Canmore boomed well into the 20th century. In 1965, with a population of 2,000, Canmore was incorporated as a town. By the 1970s the market for coal was diminished, and in 1979 Canmore Mines Ltd. ceased operations. As a result of safety and reclamation policies instigated by the province of Alberta, all but a few mining structures were demolished in the following year; only the lamp house and a few mine entrances remain today.