It was founded in 1584 by Melchior of Redern. The town was built according to a uniform plan, which is evidenced by its rectangular streets and squares.

There are two border crossings in Nové Město pod Smrkem. You can get to the Polish part of Jizerské hory and Krkonoše through the crossing for cars. The second crossing is for pedestrians and skiers only. It is on the top of Smrk and it may be used for excursions to the area of Vysoký jizerský hřeben or Polish Stóg Izerski.