Founded by German, Prussian, and Swiss immigrants in 1881, New Baden was named for the German town of Baden-Baden. The immigrants built a central building known as the Colony House to provide lodging for families while homes were under construction. Located on the route of the International & Great Northern Railroad, the town soon boasted stores, churches, a school, and a railroad station. Most of the residents were farmers, and the economy was based on agriculture. Population declined in the 1940s, but New Baden remains a viable rural community.