Danville was founded in 1827 on sixty acres of land donated by Guy W. Smith and twenty donated by Dan W. Beckwith. The sale of lots was set for April 10, 1827 and advertised in newspapers in Indianapolis, Indiana and the state capital of Vandalia.The first post office was established in May of the same year in the house of Amos Williams, organizer of Vermilion and Edgar Counties and a prominent Danville citizen. Williams and Beckwith drew up the first plat map; the city was named after Dan Beckwith at Williams' suggestion, although Beckwith suggested the names "Williamsburg" and "Williamstown". Beckwith was born in Pennsylvania in 1795 and moved to Indiana as a young man; in 1819 he accompanied the first white explorers to the area where Danville later existed because of his interest in the salt springs of the Vermilion River. He died in 1835 of pneumonia contracted on a horseback ride back from Washington; he was 40 years old.

The Elks' Club, Public Library, and YMCA buildings circa 1920

Danville became a major industrial city in the late 19th and early twentieth centuries. From the 1850s to the 1940s, Danville was an important coal mining area; some of the first open pit mining techniques were practiced here.The coal formation underlying eastern Illinois and western Indiana is named the "Danville Member," after the area where it was first discovered. With the closure of the mines and many factories, Danville's economic base suffered in the later half of the 20th century. Today the former mines are still an important natural resource; the pits have been restored into lakes, creating fishing and recreation opportunities at parks such as Kickapoo State Recreation Area.