According to locals, Jinotega began when five Spanish families moved north from Matagalpa to settle the “dry zone” or “zona seca” community of Naranjo which lies within the department of Jinotega - about 15 kilometers south of the city of Jinotega. The city of Jinotega was formed in the middle of a bowl-like mountainous area as a natural place for farmers in the surrounding countryside to come and trade. A large cross was placed at the highest point on the western edge of the city. It can be seen illuminated at night.

The Name Jinotega derives from the Nahuatl word “Xinotencatl”. Linguists disagree on the meaning of this word. Some interpret it as “City of the Old Men”, whereas others translate it as “Neighbors of the Jiñocuabos”. The word “Neighbors” here should be understood as being like the ending “ville” or “land” in English, like e.g. in “Janesville” or “Maryland”. The interpretation as “Neighbors of the Jiñocuabos” is more likely to be the right one, since Jiñocuabo is a tree (bursera simaruba (L.) Sarg.) which was praised by the natives as a healing tree. Jiñocuabo trees still grow in the areas surrounding Jinotega.

The Jinotega region was perhaps the most war-torn region in Nicaragua's history. Its remote location provided a haven for rebel forces throughout the last seven decades. The most intense battles took place in the Department of Jinotega between 1927 and 1934 under Augusto C. Sandino and his troops (popularly known as “los Bandoleros”) against the American occupation troops (popularly known as “los marinos yankis”). Later, at the end of the 1970s Jinotega was a place of bitter war between the troops of Anastasio Somoza Debayle and the civil population. Somoza was defeated on July 19, 1979. After a short period of enthusiasm, civil war began again between government troops of the new Sandinista regime and civilians who felt betrayed by the Sandinistas.