There is evidence of human presence in this area going back to the Iron Age, and some ancient bronze objects have been discovered dating from the Italic period (1000 B.C.). This was a time when the population lived up on the Apennines and operated a barter system with the people settled on the opposite slopes of the valley. Much later, in the third century B.C., the population began to descend to the valley and founded “Hellvillum”. These people continued to speak the Umbra language, as is shown by a second century B.C. inscription in a temple dedicated to the goddess Cupra.

There are many remains from the Roman period, showing the importance of the town. In fact, it is the only settlement to be mentioned in all four of the ''Itineraria'' (surveys) of the territory, and is also recorded as the only ''mansio'' (stopping-off post) between Rome and Fano. Elvillum disappeared in the 6th century B.C. during the war between the Goths and the Byzantines, which resulted in a victory for the Byzantines, and it was probably they who built the castle known as the Castello di Fossato ''Roccaccio''. The castle played a vital role in defending the Byzantine Corridor from attacks by the Lombards, masters of the Via Flaminia from Terni to Gualdo Tadino. In 996 Vico, son of the Conte di Nocera, obtained jurisdiction over the "castrum fossati'' (moated castle) from Emperor Ottone III. However, the 12th century saw the disappearance of his noble descendants from the history of Fossato, and the town was taken over by the Bulgarello family, who governed it for a century. This period witnessed the most intense phase of activity in the town’s history. In 1187 the Bulgarello family ceded the town to Gubbio. Subsequently, in 1208, they submitted to control by Perugia. Then, in 1215, the Castle and inhabitants were sold to Gubbio by the Bulgarello for the sum of 4,000 libre (pounds).

This provoked a war between Perugia and Gubbio which was concluded in 1259 with the submission of Castello di Fossato to Perugia. After these events, the Bulgarello family disappeared from the story of Fossato. It is generally believed, however, that it was they who constructed the second "castrum fossati", which stands at the foot of the original castle. Shortly afterwards, the town became a Commune, with one of the oldest statutes in Umbria. This period of existence as a free commune came to an end in 1540 when the town submitted to the Papal State.

The Napoleonic invasion of Italy (1808-1814), saw the defeat of the Papal State, and Fossato was transformed into a customs post (Osteria del Gatto), on the border between the Kingdom of Italy and the Kingdom of France. Its neighbouring town, Gualdo, fell under the jurisdiction of the latter. With the fall of Napoleon, Fossato returned to the control of the resurgent Papal State. Finally, in 1860, it was annexed into the Kingdom of Italy. Some places around Fossato have very ancient origins, such as Palazzolo, Colbassano and Purello. So also has the extraordinary site of Ghea, which has been variously referred to in its time as ''plebs'', then ''curtis'', after that ''curia'', next ''castrum'' and finally ''villa''. Nowadays, however, it is just known as the site of the Sanctuary.