The town, currently known as "La Colina Iluminada de los Andes" ("The Illuminated Hill of the Andes"), is the second oldest municipality in the department. In Pre-Columbian times the territory where modern Filandia is located was occupied by indigenous peoples of the Quimbaya tribe, who not only practiced agriculture but were also noted for their metalwork, particularly in gold and tumbaga, an alloy of gold and copper. The name Filandia comes from "Filia" (daughter), "Andia" (Andes); Filandia, daughter of the Andes. The Quimbayans began to diminish in number after the arrival of the Spanish in the 16th century. It is estimated that Filandia along with most of the Quindío territories were uninhabited for about 200 years until the "Colonizacion Antioqueña" in the 19th century.

It is thought that by 1870 settlers from the department of Antioquia in the northwest of Colombia were already settled in modern-day Filandia. On August 20, 1878, Filandia was founded by Felipe Melendez, Eliseo Buitrago, and others, as a settlement of Colombians escaping the misfortune faced by the rest of the nation at the time. The Antioqueños came to Quindío attracted by the rumors of massive gold and emerald deposits in the area.

In the early years of the 20th century, Filandia was a prosperous community - trade and industry had grown to the point that by 1900 there were estimated to be 250,000 coffee bushes in Filandia. As a response to the increased coffee production, many processing plants were created and the coffee culture now synonymous with the town was born.

By 1930, however, Filandia was in decline. The road the first settlers used to populate the town lost its importance due to the construction of a highway to the east connecting the capital of Risaralda and the capital of Quindío, isolating the town and providing a more direct alternate route to goods and services that previously were obliged to pass through Filandia.