Star Valley sits at an elevation of 4,650 feet (1,420 m) and takes its name from the valley in which it is located, formed by Houston Creek, which descends to the south through Tonto National Forest to Tonto Creek, a tributary of the Salt River. The town was incorporated as the Town of Diamond Star, but changed its name to Star Valley in 2006.

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The earliest inhabitants of the northern region of Gila County are believed to have arrived here around ten thousand years ago. Mogollon culture eventually moved into the region from the east about 300 B.C. followed by the Anasazi from the north and the Hohokam from the south. It is estimated that about 1,000 sites in the Star Valley area were inhabited over the time period from 600 and 1200 A.D.

The Tonto Apache tribe still maintains a reservation near Star Valley, just to the south of Payson.  February of 1863 saw the establishment of the Arizona Territory, but it would not be until 1876 when the area would see its first white settler. By 1878, a few miners were working the nearby hills and more settlers began to migrate to the area. Cattle ranches were also being established at this time. The miners and military were responsible for the early development of roads into the region.  The last major battle between the United States military and the Apaches occurred north of Star Valley and just into the southern portion of Coconino County. The engagement is referred to as the Battle of Big Dry Wash and took place in 1882.