Standing by an important salmon river, Muonionjoki, the area has been inhabited for at least 7,000 years. The meaning of the name Muonio is unknown but probably of Sami origin. It appears first in manuscripts from mid 16th century and in a Swedish map from 17th century in forms Monanisk kyla, Mononiske or Muniosuij. The original name of the municipality was Muonionniska (“top of the rapids of Muonio[river]”) which was abbreviated into its current form in 1923. There is notable amount of ancient holy places of the Sami people in the municipality.
Being inhabited by the Sámi for ages, the first mention of Finnish landownership in Muonio is from 1575, actually before the Crown of Sweden had taken the lands into its ownership, which officially happened in 1584. From the early 1600s Muonio area was administered from Pajala (in present Sweden) until 1812 when the newborn borderline between the kingdom of Sweden and the Russian Empire made Muonio an independent parish.
In the World War II aftermath known as the Lapland War the destruction was somewhat complete; well over 80% of all buildings were destroyed by retreating German troops. For example in the main village only the church and a few storehouses were saved.
For some decades Muonio has been one of the places where international car manufacturers test their new car models in harsh winter conditions. The proving grounds are vast but hidden in the forests. This business is shrouded in the utmost secrecy, but it provides a significant source of income to this small community.
Muonio has about 2,300 permanent residents, about half of them living in the main village. Like many other municipalities in Finnish Lapland, present day Muonio lives mostly from tourism. This was heavily boosted in late 1990s by shifting the municipality border so that the Pallastunturi fells became part of Muonio instead of Kittilä.
The municipality is unilingually Finnish even though the northernmost villages have names also in Northern Sami. English is widely understood. Like in the other municipalities in the Muonionjoki-Tornionjoki river valley – both sides the border – the local Finnish dialect is distinctive.