The first route across Stevens Pass was built by the Great Northern Railway in 1892. The townsite was across the Wenatchee River from Icicle and was named Leavenworth the same year the rail construction began. Captain Charles Leavenworth, president of the Okanogan Investment Company, purchased the land in the present-day downtown and laid the streets parallel to the new railroad tracks.

The railroad construction was completed during the winter of 1893. Lafayette Lamb and his brother, Chauncery Lamb arrived in 1903 from Iowa to build the second largest sawmill in Washington state.

Leavenworth was officially incorporated on September 5, 1906. A small timber community, it became the headquarters of the Great North Railroad in the early 1900s. The railroad relocated to Wenatchee in the 1920s, greatly affecting Leavenworth's economy.

The city struggled until 1962, when the Project LIFE (Leavenworth Improvement For Everyone) Committee was formed to transform the city into a mock Bavarian village to revitalize its economy. In this same vein, Leavenworth is home to the Leavenworth Nutcracker Museum, which opened in 1995 and contains more than 5,000 nutcrackers dating from prehistoric to modern. Leavenworth's annual Oktoberfest celebration is claimed to be one of the most attended in the world outside Munich, Germany. or the Kitchener-Waterloo Oktoberfest held in Ontario, Canada where attendance last year (2006) was expected to top 700,000.

In November 2007 Good Morning America went to Leavenworth for Holiday Gifts for the Globe where GMA helped light up the town for the Christmas Holiday. Leavenworth was also named the Ultimate HolidayTown USA by A&E.

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