The location first received a station on the Chicago & Northwestern Railroad in 1884 and has been known by the names of Spring Valley and Newtown. Caspian was founded and platted with the name Palatka in 1901. It was a headquarters for a mining company, Voroner Mining Company. Voroner operated three mines, Baltic, Caspian, and Fogarty mines. With the expansion of the mines, a second adjacent village named Caspian was founded in 1908. The post office moved there. The location was poor and a new adjacent village called New Caspian was formed in 1909. The whole area was incorporated as the village of Caspian in 1918.
Caspian became a city in 1949.