Shepherdstown is located on the banks of the Potomac River in Jefferson County. Settled heavily by German immigrants and once known as Mechlenburg, it was renamed in 1798 for Thomas Shepherd, who had established a gristmill there by 1739 and later sold town lots. Shepherdstown shares honors with Romney as the oldest incorporated town in present West Virginia, both receiving their charters on December 23, 1762. Thomas Shepherd had presented the Shepherdstown incorporation bill to the Virginia legislature during the previous month, on November 12, 1762.

Situated at Pack Horse Ford, an ancient Potomac River crossing, Shepherdstown is among West Virginia's most historic places. One contingent of the famous Bee Line March started there in 1775, as Western Virginia riflemen set out to reinforce George Washington at Boston. After the Revolution, Washington was among those interested in the steamboat tested by James Rumsey at Shepherdstown in 1787. The Civil War Battle of Antietam was fought nearby in Maryland in September 1862, with fighting spilling over into Jefferson County before and after the bloody main battle. Shepherdstown, more Northern in its allegiances than Charles Town, served as Jefferson County county seat in the aftermath of the Civil War, from 1865 to 1871. Shepherd College (now University) was established in 1871.

Shepherdstown remains a genteel country town in the early 21st century, favored by its old families as well as Washingtonarea commuters and retirees seeking a quiet life in settled surroundings. The U.S. Fish and Wildlife Service established the National Conservation Training Center there in 1997, and the town is also known for the annual Contemporary American Theater Festival. The Shepherdstown historic district was added to the National Register of Historic Places in 1973 and expanded in 1987. Shepherdstown's picturesque German Street is a favorite with photographers. In 2010, the population of Shepherdstown was 1,734.