Jagersfontein developed on the farm of CF Visser, who bought it from a Griqua leader, Jacobus Jagers, in 1854.  In 1870, a local farmer, J.J. de Klerk, found a 50 carat (10 g) diamond. This was about three years before diamonds were discovered 130 km away at Kimberley.

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As Jagersfontein was situated directly in the path of the prospectors who were trekking up from Port Elizabeth to the alluvial diamond diggings, a new diamond rush began to this remote village.  The farm was subsequently rushed by hundreds of diggers who staked out claims and worked an open pit.  By 1871, a large settlement had sprung up, and the Free State Government appointed Charles Hutton of Fauresmith, as the first inspector of mines.

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Mining was difficult, due to water scarcity, the arid climate, the difficulty of securing food supplies and equipment, the primitive modes of working and insufficient capital to work claims effectively. Many diggers preferred to try their luck in Kimberley. in 1871, some real progress was made in developing the mine. A group of Australian gold diggers, arrived at Jagersfontein, determined to make a success of the diggings. They brought horse-powered machinery, and the mine was sectioned off into 1 244 claims, each measuring 30 square feet. This caused a second rush to the mine, mainly by diggers who were being pushed out of the Kimberley diamond diggings. Then mining made steady progress.  Several mining companies were established by amalgamating different mining claims.

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By 1887, the New Jagersfontein and United Diamond Mining companies held all the claims. They merged in 1891, with a capital value of £1-million.  There were many great finds, such as the 972 carat Excelsior Diamond of 1893 and the 637 carat Reitz Diamond of 1895. The Jagersfontein Mine is the deepest hand-excavated hole in the world. The Reitz diamond was first named after Francis William Reitz, then state president of the Orange Free State in which Jagersfontein was located. The following year marked the Diamond Jubilee of Queen Victoria (the 60th anniversary of her coronation) so the gem was renamed the Jubilee Diamond to commemorate the occasion.

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By 1890, Jagersfontein was a very vibrant village, largely English-speaking, due to the large number of immigrant miners. It was the second town in South Africa and the first town in the Orange Free State to have electricity and piped water. 

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The Jagersfontein mine was acquired by De Beers Consolidated Mines, under the direction of Sir Ernest Oppenheimer, in 1930. The mine operated on and off (operations ceased during the Anglo Boer War, World War I and World War II, as well as during the Great Depression) for 99 years before it was officially closed in February 1969.  In 2010, De Beers sold the Jagersfontein mine to black economically empowered entity Superkolong Consortium, which is reworking the mine dumps.

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