A company town once owned by the Carlisle Lumber Company, and the former location of the Carlisle Lumber Plant, once the largest lumber mill in Lewis County, with an output at full capacity of 150,000 board feet a day. By the 1940s, rows of uniform, drab houses, owned by the company, were separated from the mill by a high board fence topped by barbed wire. As usual in such one-industry towns, the activities of the inhabitants were circumscribed by, and bound up with, “the mill.” During the 1930s, the town was the scene of a long and bitter labor dispute. During the general northwest lumber strike of 1935, the company replaced the striking mill hands with non-union crews, who were formed into an employees’ association, or company union. The controversy resulted in several clashes between strikers on the one hand and the railroad police and the Washington State Patrol on the other. The strike continued until 1938, when the company began reinstatement of the strikers in accordance with a decision of the United States Supreme Court upholding the major portions of the findings of the National Labor Relations Board. Dissolution of the company union and recognition of collective bargaining rights were also ordered. A later decision, in 1938, ordering the payment of $158,000 in lieu of wages lost by the strikers, was also upheld in 1939 by the Supreme Court. The mill closed in 1942 and most of the plant was dismantled. A few buildings remained and were used as a prison camp during World War II, where prisoners from the state penitentiary in Walla Walla were housed to cut wood for their prison.

The town was named for Oonalaska in the Aleutian Islands, as described by a Scottish poet, Thomas Campbell. William Carlisle had previously given the same name to towns in Wisconsin, Arkansas, and Texas when the Carlisle Lumber Company had also established sawmills. In Alaska it has been modified to Unalaska.