The Cobden area was first settled in the 1840s by Dr. Daniel Curdie, a medical doctor from the Isle of Arran, Scotland, who was beloved by local Aboriginal warriors for his habit of tending their wounds after tribal skirmishes. He settled in the Heytesbury forest area on a small creek not far from where the present day Cobden lies. Dr. Curdie, so overcome by its beauty, christened the area Lovely Banks.
The Cobden township was established in the late 1860s, the Post Office opening on 6 January 1867. The Heytesbury Forest attracted logging companies and with them more settlers. Homes were built and stock set to graze on the newly established pasture. In April 1892 a railway was established from Camperdown thru Cobden to Timboon, a plan to extend the line to Port Campbell was never built, the train carried out timber and came back loaded with produce and provisions.
The prosperity was not to last however and as the Heytesbury forest was reduced in size, most of it surviving in the Jancourt State Forest, The need for freight trains waned.
The last train was in 1987. The line has since been removed, its place taken by a walking trail. In 1888 Cobden opened the first cheese and butter factory in Victoria. Today the factory still operates, owned by Fonterra Co-operative Group Ltd, and houses the largest milk drying plant in Australia. Today Cobden and its surrounding area claim to be the "Dairy Capital" of the world, a claim based on the over 140,000 head of cattle in and around the area.