At the time of the founding of San Martín de los Andes the valley of Chapelco were sparsely populated by indigenous Puelches who used it as a refuge during the harsh winters of the zone. The Puelches had since colonial times engage in trade with the Huillicheson the eastern slope of the Andes through various mountain passes. Puelches raised horses on the eastern slopes of the Andes and traded them for weapons and alcoholic beverages becoming one of the main food providers of the isolated exclave of Valdivia. The Argentine and Chilean military campaigns; conquest of the Desert and the occupation of Araucanía; in the second half of the 19th century bought a definitive end to this trade.
In 1898 a military expedition arrived to the zone to take a definitive control of the zone due to increasing border disputes with Chile. The Boundary treaty of 1881 between Chile and Argentina led to disputes whether the main Andean cordillera or the continental divide should serve as border in this latitude. Chilean authorities argued that since Lácar Lake drained into the Pacific the area of San Martín should belong to Chile. The Argentine government was also concerned about the zone's dependence on trade with Chile, just like in Bariloche and other parts of the southern Andes. San Martín de los Andes, modeled like a European style alpine village, was founded on 4 February 1898. Following the founding the main economic activities were wood logging and husbandry.
A major change in settlement life came when in 1937 Lanín National Park was created. This meant that wood logging was gradually reduced and numerous small settlements along the lake shore disappeared. New roads were built effectively connecting San Martín with the rest of Argentina. This led to an increased trade that almost ended local husbandry and agriculture. In the 1970s with the help of bank credits many tourism enterprises were established in San Martín making the town up to this day an important
