Early references of Chanderi is found, probably, in Mahabharata where it is mentioned as Chedi country ruled by Shishupala. An another legend says that when Nala left Damayanti in the forests of Narwar, the latter wandered around and reached Chaidnagar. Inscriptions found at Budhi Chanderi mention a Pratihara branch ruling over this region during the eleventh century CE. Budhi Chanderi is mentioned as Chandrapur in these inscriptions. The present town of Chanderi, little far from Budhi Chanderi, was first settled by Kirtipal, a king of the Pratihara lineage.

After the rule of the Pratiharas, Chanderi went into the Kachchwa Rajputs who ruled from their capital at Narwar. Ghiyasuddin Balban, a minister of the Sultan Naseeruddin in Delhi, captured Chanderi from the Rajputs in 1251-52 CE, however as soon as Balban left the town, the Rajputs again took control over it. Chanderi was annexed to the Delhi throne in the time of Allauddin Khilji who conquered it after sitting on Delhi throne in 1294 CE. Chanderi has special mention in the travelogues of Ibn Batuta who visited this town in about 1342 CE. He described this town as a sprawling city full of big bazaars filled with people and goods.

Chanderi acquired this reputation due to its proximity to the trade routes of Central India, to the ancient ports of Gujarat as well as to Malwa, Mewar, and the Deccan. Chanderi also gained this prosperity due to its strategic position as a sort of base camp for armies moving south from the time of the Sultans of Delhi. In 1392, Malwa Sultanate was founded by Dilawar Khan Ghori, asserting his independence from the Delhi and started ruling from Mandu. After his death, his younger son, Qadir Shah, established a rival empire at Chanderi but it was incorporated into the Malwa Sultanate in 1424 CE, by his elder brother, Hoshang Shah.
In 1520, Chanderi came into the dominion of Rana Sanga who in turn bestowed it to Medini Rai, his trusted ally. Medini Rai ruled over it till 1528 CE before losing it to Babur. Babur writes in his Baburnama that he won over this fort without raising his standards or beating his kettle-drum and without using strength of his whole army. 

Humayun, the son of Babur, was defeated by Sher Shah Suri in 1538 CE, and the latter put Puranmal, the king of Raisen, as the governor of Chanderi. However Humayun returned to Delhi in 1546 CE and captured Delhi. However at the same time, Mallu Khan, the then Sultan of Malwa, took over Chanderi. Akbar took over Chanderi in 1569 CE. Abul Fazl describes Chanderi as a flourishing town with 14,000 stone built houses, 61 palaces, 384 bazaars, 350 camel caravanserai, 1200 mosques, 1200 step-wells, 6659 cavalry, 5970 horse infantry and 90 elephants. Jahangir in 1605 CE handed over Chanderi to Ram Shah, a Bundela Rajput. Bundelas ruled for next 253 years over Chanderi. The Bundelas ruled in harmony with the Mughal rulers and hence Chanderi became a prosperous town. However after the death of Aurangzeb in 1707 CE, Durjan Singh, the then Bundela ruler of Chanderi, severed all ties with the Mughals. However to fight against the Marathas, he had to again tie up with the Mughals. It was under Man Singh, the son of Durjan Singh, permanently severed the ties with the Mughals. However later Bundela rulers were not very efficient and Chanderi witnessed days of anarchy and mismanagement. The last Bundela ruler, Maud Prahlad, was very much indulged in the luxury and excessive expenses.

In 1811, the Chanderi fort was taken over by Colonel John Baptise Filose for Daulat Rao Scindia and Chanderi was given to the Scindias of Gwalior. Mardan Singh, the son of Maud Prahlad, seized Chanderi traking advantage of the confusion and rift developed in the Scindia family after the death of Jankaouji Rao Scindia in 1844 CE. Durjan Singh expanded his army under the patronage and training from French officials. He allied with Rani Lakshmi Bai and took part in the uprising of 1857. In 1858, the British forces under Sir Huge Rose captured Chanderi and imprisoned Durjan Singh. He was later sent to Vrindavan for the rest of his life. Chanderi was returned to the Scindias in 1860 after a treaty between them and the British. On the borders of Malwa and Bundelkhand, the town dominated the trade routes of Central India,. Consequently, Chanderi became an important military outpost, prized by rulers with power and repeatedly experienced the might of men who moulded the destiny of Hindustan. Chanderi also came up as pilgrimage center with the coming up of Jain temples in the 9th and 10th century.