A Chicago and North Western Railway station was established at the community in 1872. On July 13, 1874, a post office was opened here under the name of "Wacedah", with Alva F. Burnham as its postmaster. The post office was renamed after local leader Samuel M. Stephenson on January 10, 1876. After representing the community in the Michigan Legislature as both a representative and senator Stephenson would serve the community so named for him (and the remainder of what was then 12th district) in the United States Congress from 1889 to 1896. Stephenson incorporated as a village in 1898.
Stephenson village incorporated as a city in 1968.