Once known as San Dieguito, the area that now encompasses this North County community was bought by the Atchison, Topeka, and Santa Fe Railroad in 1906. The railroad planted thousands of eucalyptus trees for use as railroad ties. The project was scraped, however, because eucalyptus grew much more slowly than expected and because it was also discovered that the wood has a tendency to split when attacked with a spike!

When the Lake Hodges dam was completed in 1917 — bringing water to the area — residential development became the focus of the community. Construction of the "Covenant" — as the original subdivision was called — began in 1922. The Spanish Colonial Revival flavor of the various public buildings was largely thanks to the efforts of local architect Lilian Rice. She also designed many private residences with her trademark style and those homes are among the most coveted in The Ranch, as residents affectionately refer to this little slice of heaven.

The Rancho Santa Fe Association enforces strict landscaping, architectural, and commercial development codes. The minimum Covenant lot size decreed by the association, for example, is 2.5 acres. The Rancho Santa Fe Association, financially supported by the landowners, also maintains the golf course, tennis club, riding club, and country club and pays for a private security force, fire department, and emergency medical services. A community youth center and the area county library branch also receive support from the association.