It is located at the northern shore of lake Möckeln, and the small settlement was initially called Möckelns bodar. The name Karlskoga is derived from Charles (Karl) IX, with skog meaning woods.
The parish of Karlskoga was established in 1586 and a wooden church was soon built. In the 17th century fourteen small iron works and eight waterdriven hammers for bar iron were established. Most of these were still operating in the 1860s, but the dominating iron works was the one in nearby Bofors. In 1871, Bofors produced 6,124 metric tons of iron, more than any other plant in Sweden. In 1882, Karlskoga parish (socken) had 11,184 inhabitants.

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