Until a century ago, Bundoran was composed of two separate villages. The village west of the bridge over the river was known as the West End, while east of the bridge was the village of Single Street.

In between lay the townland of Drumacrin, which is more or less where the town centre is located today. The communities merged in 1866 as Bundoran, when a railway station opened there.

The station made the seaside town more accessible to the public, and boarding houses and hotels started appearing. The most famous of these was the Great Northern Hotel, built by the Great Northern Railway Company. The town became so popular it was called Ireland's Brighton Beach.

During the years of the Troubles, Bundoran was a particularly busy destination for cross-Border tourists, who wanted to temporarily leave the six counties every year during the marching season. Partly as a response to this new influx of tourists, the number of amusement arcades increased. While cross-Border tourism increased, domestic visitors decreased, as fewer people chose to travel to Co Donegal during that period.

Bundoran hit the headlines in August 1980 when 10 people on holiday there, five of them children, died in a fire in the Central Hotel. In 1992, Pat McCabe located a key scene there in his novel The Butcher Boy, when Francie Brady goes back to the town to see the place where his parents had (unhappily) gone on honeymoon. In the film version of the book, Sinead O'Connor, cast as the Virgin Mary, famously sang the song Beautiful Bundoran.

Within the last decade, the town has gained an international reputation as an excellent surfing destination, attracting a fresh new generation of tourists. There are now four surf schools in the town.

However, Bundoran still continues to attract mixed reviews in guide books. Last year, Irish-born Fionn Davenport described the town as "one of Ireland's tackiest holiday resorts", in the influential Lonely Planet Ireland, a criticism which, predictably, was rejected by Bundoran's tourism spokespersons.