The first post office was established at Paradise in 1877; it closed for a time in 1911, but was re-established later that year, when the post office at Orloff was closed. Paradise incorporated in 1979. For many years, the Butte County Railroad operated trains along the ridge, serving mines and sawmills.
A legend persists that the town was named because it was the home of the Pair o' Dice Saloon, an idea supported by the fact than an official 1900 railroad map referred to the town as "Paradice". However, according to folklorist Barbara Mikkelson of Snopes.com, there is no documentation of such an establishment, nor an explanation of how the map's spelling of the town originated. Gene Sylva, a former mayor of the nearby town of Oroville, has stated that the saloon story is false, and that the true etymology of the town's name is traced to his great-great-grandfather, William Pierce Leonard, who named the town on a summer day in 1864, after a hot and dusty ride from the Sacramento Valley. Arriving at his sawmill while the staff were on break, Leonard "took a deep breath of the cool, clean air, and exclaimed, 'Boys, this is paradise.'" Mikkelson, however, suggests that Sylva's explanation may also be "pleasingly inventive historical fiction", but surmises that the town was probably named for it being a pleasant place to live.