Tarlee probably derived its name from the Aboriginal word for the local water hole although this has been the subject of much dispute. There is a body of opinion which says it was originally named 'Tralee' by Irish workers and another opinion claims it was from an Aboriginal word 'Tarralee'. It was a rural centre which came into existence in the 1860s as a stopover point for the early traffic moving to and from the Kapunda and Burra mines. Many of the town's most attractive historic buildings date from that period. It was around this time, in 1868, that a number of blocks of land in the town were sold with a prime block next to the railway station fetching £30.
Perhaps the town's greatest claim to fame is that during the late 19th century the local stone quarries provided the foundations for the Adelaide Museum, the Adelaide GPO, the Legislative Council Building and Adelaide Railway Station.