The name 'Bungaree' derives from the Aboriginal word 'bungairie', meaning hut.
Irish potato-farming families were amongst the first migrants to the Bungaree district, taking advantage of its rich soil. However, it was the discovery of gold in 1851 that had the greatest influence on the development of the region. By the following year there were around 20,000 diggers in the Ballarat goldfields.
There was considerable forest in the Bunagree district when it was first settled. The main industries were timber splitting for mineworks and firewood, and farming on the good soil when it was cleared. Numerous settlers took up small farms, some of about 20 acres. Bungaree’s name became immortalised when, at an election speech for the seat of Ballarat East in 1864, the Orange Lodge candidate addressed the crowd as "gentlemen of Ballarat and savages of Bungaree", a deliberate insult to the Irish-Catholic farming community. The meeting erupted into uproar, and ‘Bungaree savages’ became local argot.
The Bungaree Post Office opened on 1 August 1863. Today, the town includes a Primary School and the Bungaree Recreation Reserve, which features an AFL standard oval and newly refurbished netball courts. The town is home to the Bungaree Demons, which are part of the Central Highlands Football and Netball League.