The origin of the martini is uncertain. By one widely disseminated account, the martini is a descendant of the Martinez, an older, sweeter cocktail consisting of two ounces of sweet vermouth, one ounce Old Tom gin (a sweetened variant), two dashes maraschino cherry liquid, and one dash bitters, shaken with ice, strained, and served with a twist of lemon. The Martinez was most likely invented in Martinez, California, where a plaque commemorating the birth of the martini can be found on the north-east corner of the intersection of Alahambra and Masonic streets. The earliest known reference to the Martinez is found in "The Bon Vivants Companion: Or How to Mix Drinks," first published in 1862 and authored by "Professor" Jerry Thomas, the "Principal Barman" at many famous watering holes including the Occidental Hotel in San Francisco. According to George A. Zabriske, who republished the original book in 1928, Thomas had a client who took a ferry from the Occidental Hotel on Montgomery Street to Martinez, then the state capital of California, every morning. Thomas mixed him the Martinez to keep the morning chill off, and named it after his client's destination. Distilled spirits in the 1800s were not regulated as they are today, and were sold at cask strength—upwards of 135 proof. As the strength of the spirits decreased, smaller quantities of mixers were needed to make them palatable. Now it is more common to see a martini made with little or no vermouth. Some suggest that the drink owes its name to Martini (known in the United States as Martini & Rossi), the brand name for a popular Italian vermouth marketed internationally since the nineteenth century. Americans who order the drink in Italy are often surprised to be served a sweet vermouth instead of a cocktail containing gin or vodka. (There the martini is best ordered as a "martini cocktail".)

In the book The World's Drinks and How to Mix Them (1907), written by William T. Boothby, the recipe for dry martini cocktail (à la Charlie Shaw, Los Angeles) instructs, "into a mixing glass place some cracked ice, two dashes of orange bitters, half a jigger of (dry) French vermouth, and half a jigger of dry English gin. Stir well until thoroughly chilled, strain into a stem cocktail-glass, squeeze a piece of lemon peel over the top and serve with an olive." Other than the bitters and the ratio of vermouth to gin, this is remarkably similar to a modern martini cocktail.

William Grimes, restaurant critic for the New York Times claims (in Straight Up or On the Rocks: the Story of the American Cocktail) that the dry martini was invented in 1912 by Signor Martini di Arma di Taggia, the bartender at New York's Knickerbocker Hotel. Numerous published references to the martini before 1912 discount this theory.

The martini was an established American cocktail at the beginning of the twentieth century, but did not attain its pre-eminent status as the country's classic cocktail until later in the century. Perhaps paradoxically, Prohibition did a great deal to elevate the martini's stature. Americans' preferred tipple at that time—whiskey—requires skillful blending and long aging, whereas cheap but (marginally) drinkable bathtub gin is relatively easy to produce, so martinis were more readily available in the era of the speakeasy.

The Prohibition-era martini was quite sweet by today's standards. With the repeal of Prohibition, and the ready availability of quality gin in the United States, the drink became progressively dryer, with less vermouth being added. This trend eventually reached fetishistic extremes, and became the source of a considerable body of martini anecdotes, wit, and lore. One might prepare a martini by waving the cap of a vermouth bottle over the glass, or observing that "there was vermouth in the house once." Winston Churchill chose to forgo vermouth completely, and instead simply bowed in the direction of France, while General Patton suggested pointing the gin bottle in the general direction of Italy. Alfred Hitchcock's recipe called for five parts gin and "a quick glance at a bottle of vermouth." Ernest Hemingway liked to order a "Montgomery", which was a martini mixed at a 15:1 gin-to-vermouth ratio (these supposedly being the odds Field Marshall Montgomery wanted to have before going into battle). In a classic bit of stage business in the 1955 play Auntie Mame, sophisticated pre-adolescent Patrick Dennis offers a martini, which he prepares by swirling a drop of vermouth in the glass, then tossing it out before filling the glass with gin. Similarly, in the 1958 movie Teacher's Pet, Clark Gable mixes a martini by turning the bottle of vermouth upside-down before running the moistened cork around the rim of the glass and filling it with gin. Surrealist director Luis Buñuel was another supporter of the drink, including his personal recipe into his Oscar-winning 1972 film Le charme discret de la bourgeoisie and in his memoirs, which consists basically of "coating the cubes", a method of adding the flavor of vermouth by pouring the vermouth into a shaker of ice, then pouring it out before adding gin. A scene cut from the theatrical version of M*A*S*H suggested that a bottle of vermouth should 'last an entire war.' Also, atomizers similar to those used for perfume were sometimes used to dispense a token amount of vermouth.

The martini's popularity waned in the health-conscious, wine-and-spritzer-drinking 1970s, but waxed in the late 1980s and 1990. During this martini renaissance, vodka supplanted gin as the most commonly requested base spirit, and new variations proliferated: the green apple martini, the chocolate martini, etc. Whether the more extreme variations of this era may truly be called martinis remains a topic of debate. The first reference to a vodka martini in the United States occurs in the 1951 cocktail book Bottoms Up by Ted Saucier. The recipe is credited to celebrity photographer Jerome Zerbe.