Originally established after the 1849 California Gold Rush as a mining camp, the town was first called Mountain View. A dog breeding operation started in 1850 which led to the name Dogtown. A post office opened in 1857, which was shared with the adjacent settlement of Mill City; the two eventually united. In 1861 the name was changed to Magalia after the Latin word for cottages.
On April 12, 1859, at the Willard Claim, a hydraulic mine in the Feather River Canyon northeast of the town, a 54-pound (20 kg) gold nugget was discovered, the largest in the world at the time. Dubbed the "Dogtown nugget", it made the town famous.
Magalia has beautiful views, trails and fishing. Further up the hill, is DeSalba Reservoir and further up, the flumes, famous for their hiking trails.