Lacombe was named in 1893 by railway officials to honour Father Albert Lacombe, an outstanding Roman Catholic Missionary who was accepted as a friend by the aboriginals. Settlement of the community started in 1883. C.A. Magrath surveyed the Lacombe district for homesteads; Magrath was later employed by the Galt mining interests at Lethbridge, and married Sir Alexander Galt's daughter. Magrath was responsible for the development of irrigation in southern Alberta. Among the early settlers were Ed Barnett, W. Findlater, W.B. McPherson, E.M.H. Parlby, Dr. E.M. Sharpe, W.N. Morrison, Roy Hoppus and W.F. Puffer, who was the first member of the Alberta Legislature to represent this district.
Ed Barnett built a log barn and house about a mile north of the present site of downtown Lacombe. By the time the Calgary and Edmonton Railway (later named the Canadian Pacific Railway) reached Lacombe in 1891 there were 19 adults and 16 children populating the area. In 1893 the present townsite had a population of approximately 25 people, and by 1900 this had increased to about 100 and was considered to be larger than Red Deer. The first post office was opened in 1893 with Mr. Dalmage as the first postmaster.
The hamlet was constructed as a village July 28, 1896 and incorporated as a town May 10, 1902. W. Burris was the first mayor and the first town councillors were M. J. McLeod, C. F. Morris, H. A. Day, H. B. Powell, W. F. Puffer and Joseph Tire.
By 1907 the population of Lacombe began to increase at a great pace. Many residential and commercial developments were approved at this time and, at that time, Lacombe was known as a city with great commercial importance.
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