First mentioned as Ollanege (Olla's island) in 932, the town has a history as a lace-making centre. The place, later called Olnei was held in 1086 AD by Bishop Geoffrey of Coutances as its overlord, according to the Domesday Book.
During the English Civil War, Olney was the site of the Battle of Olney Bridge.
In the late 18th century, William Cowper and John Newton collaborated here on what became known as the Olney Hymns. John Newton, author of the hymn "Amazing Grace," was curate of Olney and is buried here. His guest was William Cowper (English poet and hymnodist (1731–1800)). The town has the Cowper and Newton Museum dedicated to them. The museum was adapted from Cowper's former residence, which was given to the town in 1905 by the publisher William Hill Collingridge (who had been born in the house). Newton was succeeded as curate in Olney by the biblical commentator (1747–1821).
The hamlet of Olney Park Farm to the north of the town of Olney derives its name from a park established in 1374 by Ralph, Third Baron Bassett of Sapcote in Leicester. In 1861 it attained civil parish status, but was subsequently incorporated into an enlarged Olney civil parish around 1931.
Olney formerly had its own railway station on the Bedford-Northampton line and the Stratford-upon-Avon and Midland Junction Railway, but passenger services were withdrawn in 1962.
Olney Pancake Race
Signpost advertising 2009 Pancake Race
Since 1445, a pancake race has been run in the town on many Pancake Days, the day before the beginning of Lent. Tradition records that in 1445 on Shrove Tuesday, the "Shriving Bell" rang out to signal the start of the Shriving church service. On hearing the bell a local housewife, who had been busy cooking pancakes in anticipation of the beginning of Lent, ran to the church, frying pan still in hand, tossing the pancake to prevent it from burning, and dressed in her kitchen apron and headscarf.
The women of Olney recreate this race every Shrove Tuesday (known in some countries as Mardi Gras or Fat Tuesday) by running from the market place to the Church of St. Peter and St. Paul, a distance of over 400 yards. The traditional prize is a kiss from the verger. In modern times, Olney competes with the town of Liberal, Kansas in the United States for the fastest time in either town to win the "International Pancake Race". There is also a children's race, run by children from the local schools. The children have to run a distance of about 20 yards. This competition has been run every year since 1950.