'Gramado' means 'grassy spot' in Portuguese. This region was known during the colonial era as a good place to rest and feed the animals that 'tropeiros' (troops) took from the Pampas to the mines in the Brazilian State of Minas Gerais. After 1850 the first Central European immigrants started to come to Southern Brazil. Germans first settled in lower lands but then moved upwards to the highlands of Rio Grande do Sul. An important German settlement was Nova Petrópolis, a city that has retained its German culture and language. Later on, Italians also arrived to the region, and founded many cities. Caxias do Sul is the most important of them all.

Gramado also received the influence of German and Italian immigrants. However, its first inhabitants were Portuguese. The train arrived in 1921 and in 1937 Gramado obtained the tittle of village. It was an important trading centre, which provided wood, wine, cheese and sausages to the neighboring cities. After 1950 many tourists started to visit Gramado, known as the 'Brazilian Switzerland'. Hotels were built and commerce grew even more. According to the Brazilian Tourist Board, Gramado is only behind Natal (a beach resort in the Northeast of the country) in terms of number of Brazilian visitors. In 2008 Gramado received 2.5 million visitors.