In the spring of 1878, archaeological excavations were started in the ruins of the Castle of Viljandi. The excavations were initiated by Th. Schiemann, a history teacher at Viljandi Maagümnaasium, and financially supported by Fr. von Ditmar, the retired Major General. The items found during the summer were collected to establish a museum, which was named the Ditmar museum after the generous financier. As time passed, the collection grew through donations, purchases and later archaeological finds. In 1881 the Literary Society of Viljandi was formed on the basis of the committee (Ausgrabungscomité) who had organised the excavations. Its members did not only organise lectures on historical issues, but also conserved, arranged and catalogued the museum items. The society’s activities were reflected in yearbooks published in 1882-1918. The society and museum, as well as other Baltic German organisations were closed by Czarist Russian authorities in 1915, during World War I.

In the first independence period of Estonia the museum saw a decline. The main achievement was the opening of the museum for a short period at different locations. The activities of the mainly Baltic German society faded in the second half of the 1930s and officially ended in 1939 as the majority of its members left Estonia.

In 1929 another heritage society was founded in Viljandi – the Local Studies Society of Viljandi, who saw reopening the museum in Viljandi as their main objective. Support from the municipality and intensive collecting work peaked with the opening of an exhibition in the former pension in 1936. For that purpose the Literary Society of Viljandi deposited part of their collections – mostly the archaeological finds and capitals excavated from the castle ruins – at the new museum. In the Soviet period the museum also acquired the valuable numismatic collection, consisting of more than 2500 coins and part of the library which had been collected over decades.

After the USSR occupied Estonia, the museum was nationalised and a museum keeper was hired. During the German occupation in 1942 the museum was moved to the old pharmacist’s house on Kindral Laidoner Square, where it is situated since then. Fortunately, the museum collections were not damaged in World War II, but the post-war years had a devastating effect on them, as the Stalinist policy deprived the museum of a large number of valuable publications. The Soviet years shaped the successor of the Ditmar museum into a typical local history museum, in which a large part of the exhibition had to portray work achievements and victories for propaganda purposes.

In the restored Republic of Estonia the first stage of the extension to the museum, which was designed in the Soviet period, was completed. This extension houses the stores and offices and a reading room for visitors. The old pharmacist’s house became an exhibition building; its first floor galleries were renovated and opened for visitors in 1996. The second floor was opened in 2002. Since 2002 the museum has also been party to the activities of the Old Water Tower (next to the museum) and since 2003, the Kondas Centre of Naive Art. Since 2009 a collection of capitals and other pieces of cut decorations from the Viljandi Order Castle is laid out in the small hall of the Estonian Traditional Music Center, beside ruins of the castle.