Cowley was settled by part of a group of 450 Mormon pioneers led by Byron Sessions (who was also instrumental in founding the nearby town of Byron). Cowley was named in honor of LDS Apostle Matthias F. Cowley. That original group of settlers worked with the Sidon Canal Company to dig the Sidon Canal, a 37-mile-long project to carry irrigation water from the Shoshone River to the area, a project that wasn't completed until 1904. Until the canal was in operation, the settlers at Cowley were hauling all their water from the nearest potable source, 6 miles away. In 1907, oil and gas were discovered in the area.

The settlers first arrived in early May, 1900. By the next winter, 18 log homes had been built in Cowley. January 1901 saw the opening of the first school in the area in one of the log homes. On September 26, 1910, the Big Horn Academy (the first high school) was opened in Cowley. In 1916, the Big Horn Academy was moved into a newly erected rusticated sandstone building. In 1925 that name was changed to Cowley High School, a school that was in operation until 1983 when the last class was graduated from the old building. As enrollment had been declining for years, the next year saw Cowley's high school students moved to the consolidated Rocky Mountain High School in Byron, a school for students from Deaver, Frannie, Byron and Cowley.