For nearly 1000 years, Isny was an important town within the Holy Roman Empire of the German nation. During the three centuries following its origin in 1042, it was a commercial center controlled and exploited by various competing feudal lords. In the 13th century, Isny's merchants built a fortification system to protect the town from marauders and rival feudal rulers. The town is still partially surrounded by the wall and moat that were built during these early turbulent times.

After three centuries of domination by feudal lords and territorial rulers, Isny's middle class was able to purchase the town's independence in 1365. Isny's status as an imperial free city made it a self-governing republic in which the city government was elected by propertied residents and in which the guild system thrived. In 1529 Isny's city council voted to make the town Protestant and the Nikolaikirche became the town's main Protestant church.

Isny enjoyed a vibrant economy, based primarily on linen production, until competition from abroad, the devastation of the Thirty Years War, and a series of fires and plagues brought production to a halt in the 17th century. The town experienced a revival after the end of World War II, when a rehabilitation center for war veterans was established there. Fortunately, Isny emerged from the war largely undamaged, and has since become a popular destination for vacationers and resort-goers.