Eighth-century legend tells of a Javanese priest, Rsi Markandya, who meditated at the confluence of two rivers (an auspicious site for Hindus) at the Ubud locality of Campuhan. Here he founded the Gunung Lebah Temple on the valley floor, the site of which remains a pilgrim destination.[1]

The town was originally important as a source of medicinal herbs and plants; Ubud gets its name from the Balinese word ubad (medicine).[1]

In the late 19th century, Ubud became the seat of feudal lords who owed their allegiance to the king of Gianyar, at one time the most powerful of Bali's southern states. The lords were members of the Balinese Kshatriya caste of Suk and were significant supporters of the village's increasingly renowned arts scene.[1]

Antonio Blanco, a Spanish-American artist, lived in Ubud from 1952 until he died in 1999.[2] A new burst of creative energy came in the 1960s after the arrival of Dutch painter Arie Smit and the development of the Young Artists Movement. The Bali tourist boom since the late 1960s has seen much development in the town.[1]

In 2002, terrorist bombings caused a decline in tourism throughout Bali including Ubud. In response to this, a writer's festival was created, Ubud Writers and Readers Festival to help revive tourism, the island's main economic lifeline.