Uyuni itself was founded as a trading post only in 1889, but the geology of the region goes back much further. The formation of the world's largest salt flats kicked off 40,000 years ago when Lago Minchín, whose highest level reached 3760m, occupied much of southwestern Bolivia. When it evaporated, the area lay dry for 14,000 years before the appearance of short-lived Lago Tauca, which lasted for only about 1000 years and rose to 3720m. When it dried up, it left two large puddles, Lagos Poopó and Uru Uru, and two major salt concentrations, the Salares de Uyuni and Coipasa.

Because of the lack of usable water, there has been little agriculture here and historically not much reason for anyone to live here, other than to extract salt. In the 17th century several silver mines opened at nearby Pulacayo, and rail lines were constructed to transport ore. As a result of the Independence war the mines closed in 1832 but resumed in 1873. Uyuni was founded a few years later by Bolivian president Aniceto Arce.

In the 20th century Uyuni developed as a military outpost and trading center for the miners and salt workers. Most of the salt extraction is located just up the road at the settlement of Colchani. Here campesinos (subsistence farmers) hack out the salt with picks and shovels, and pile it into small conical mounds. The estimated annual output is nearly 20,000 tons but there's still another 10 billion tons left in the Salar de Uyuni!

Today, although Uyuni still has a desolate, frontier feel, tourism is the boom industry with up to 80 tour agencies set up to offer 4WD salar (salt desert) tours, and expeditions further afield on the Southwestern Circuit. Of course, this has meant many new hotels, restaurants and associated services. The town is also an important road and rail junction with trains heading south to Argentina and southwest to Chile.