Fifty-one miles east of Salem on Oregon State Highway 22, Detroit sits alongside Detroit Lake, one mile north of the town’s original location on the North Santiam River. Detroit had its beginnings in 1889 as a work camp for the Oregon Pacific Railroad, but the 1890 bankruptcy of the company halted construction of the line four miles east of the town. Still, Detroit survived, and a post office was established in 1891.

In 1895, Montana timber baron A.B. Hammond bought the Oregon Pacific Railroad, changed its name to the Oregon Central and Eastern Railroad, and established lumber camps in the area, shipping logs to nearby Mill City. The railroad also brought sportsmen to the area, seeking fish and game in the Cascade Mountains. Other visitors passed through on their way to Breitenbush Hot Springs Resort, which Merle Bruckman opened ten miles east of town in 1927.

Hammond’s death in 1934 and the Great Depression brought stagnation to Detroit until 1946, when the Army Corps of Engineers began buying land for Detroit Dam, six miles downstream. The reservoir would inundate Detroit, and residents established a new town, incorporated in 1952, on a former Hammond lumber camp next to the reservoir and Highway 22.

The dam and the resulting reservoir, Detroit Lake, transformed the local economy. Restaurants and stores served boaters, campers, and other tourists staying in town or at nearby Mongold and Detroit Lake state parks. The decline of the area’s timber industry in the 1990s led to increasing dependency on tourism.

A drought in 2001 left the reservoir dry and kept tourists away, demonstrating the vulnerability of the town’s economy, as well as the resilience of its residents. On September 9, 2020, the Santiam fire swept through the town and produced "damage of monumental, catastrophic proportions." The town government is currently preparing plans to rebuild. In 2020, Detroit had an estimated population of 203 people.