The settlement that would become Sprague began as a sheep camp in the 1870s. The town was originally called Hoodooville after early settler William Burrows, also known as Hoodoo Billy. Sprague served as the construction headquarters for the Northern Pacific Railroad, which established a regional repair center at this location in 1880 and designated Sprague a major division point. The town was named after John W. Sprague, a general superintendent of the Northern Pacific. The town plat was filed on December 27, 1880.
Sprague boomed during the early 1880s, boasting 13 saloons and nearly 1,800 residents. The town was incorporated on November 28, 1883. Beginning in 1885 it was the main sheep-shearing ground for the region and wool sheared here was shipped to the East Coast via the Northern Pacific.
A major fire on August 3, 1895, destroyed virtually all the Northern Pacific's property. The Northern Pacific opted not to rebuild the railroad roundhouse at Sprague, instead moving the terminus to Spokane. This dealt a major blow to Sprague's economy.
In 1959 the United States Air Force located an Atlas intercontinental ballistic missile site outside Sprague, part of a system of Cold War defense missiles located within a 200-mile radius of Fairchild Air Force Base in Spokane County. The Air Force dismantled the Sprague site in 1967. Other Atlas missile sites in Lincoln County were constructed at Davenport, Reardon, Lamona, and Wilbur. Missiles were stored in underground reinforced-concrete structures. All these sites had been dismantled by the late 1960s.