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The founding community traces back to the Hardin's Creek Meeting House, built by Presbyterians from Virginia. It was incorporated as a city on January 28, 1815, and became the county seat of Marion County in 1835. Because of its style, architecture, and businesses, Lebanon had the reputation of being Kentucky's Philadelphia and was considered for the site of the state capitol.

In the 19th century, Lebanon was one of the stops along the National Turnpike from Maysville to Nashville. In 1819, Henry Clay and Andrew Jackson met here after having crossed paths on their journeys. Many of its brick homes date from the antebellum period, including Hollyhill and Myrtledene Bed and Breakfast. Much of Lebanon's downtown business district was recently placed on the National Historic Register.