It was founded in 1834 by Grand Duke Leopold II of Tuscany for the workers of a new ironworks plant. However, the area was already settled in Etruscan and Roman times, and a medieval castle (Castello di Valli), whose ruins overlook now the modern town from a nearby hill, existed since at least 884. Until 1923 it was a frazione of Massa Marittima.
Follonica is a popular tourist site during the summer, mostly visited by the Italians themselves. The city has been awarded the Bandiera Blu ("Blue Flag") every year from 2000-2007 for the cleanliness of its beaches and seawater.