A post office has been in operation at Luther since 1883. Luther was laid out as a town in 1893. The community was named after Clark Luther, a local merchant.
On September 11, 2014, the Luther City Council accepted a petition from 58 residents asking that the city be discontinued. There are several steps in the discontinuation process, including approval or disapproval of the petition by the City Development Board. If the Board approves, a public referendum on discontinuation could be held in 2015. The discontinuance failed and the city continues to exist today. Since 2015 several new businesses have sprung up as well as a major expansion by the local co-op.