As the Union Pacific Railroad was pushing west to link up with the Central Pacific Railroad, as part of the First Transcontinental Railroad, they sent logging crews into the Snowy Range, in the Medicine Bow Mountains, to cut down timber (mainly Lodgepole Pine) for railroad ties. A work camp was built on the site of the town. After they had completed most of their work and the workers started having conflicts with area Indians, the crews left the area. After the area was opened to homesteaders a few ranchers returned to the area.
Men working for I. P. Lambing (superintendent at the mine) of Golden, Colorado and Colonel Stephen W. Downey (a lawyer and president of what would become Centennial Gold Mining Company) of Laramie, Wyoming, discovered gold on what would become Centennial Ridge on Centennial Mountain in 1875. As miners and prospectors started coming to the area, to work the Centennial Mine (also called the Downey Load and Centennial Vein), they reestablished a community on the old work camp site in 1876 and named the town Centennial in honor of the 100th anniversary of the signing of the Declaration of Independence and founding of the United States. Most of the gold was stripped from the mines by 1877, but the town was now established and merchants who came to serve the miners stayed to serve the nearby ranchers.