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The site is on a land claim of a pioneer settler named Fatzger, who built a grist mill near the mouth of Addy Creek in the late 1870s. In 1890, Addy became a settlement when the Spokane Falls & Northern Railway was built. It survived a destructive flood in 1894. The town was named for Mrs. Adeline (Addy) Dudrey, an early resident and wife of the first postmaster, Elias S. Dudrey.

By the 1940s the community was a scattered hamlet supported by trade with Swiss dairy farmers in the vicinity.

Today Addy is an unincorporated community with a few homes and businesses that still cater to local agriculture.