The town of Mühlhausen was established near the royal palace, which has been documented since the 10th century and was built on the site of a ford over the Unstrut, which was accessed by various traffic routes. This location promoted the rapid development of the town as an important trading center. Evidence of a mint in the 12th century is an indication of the emerging monetary economy, which presupposes a market. The Untermarkt, the main market of the old town, developed into the economic center with the Blasii church as its focal point. Farmers from the surrounding area supplied the inhabitants with food and long-distance traders arranged the exchange of valuable handicraft products. Weekly and annual markets characterized the market scene. Valuable fabrics were traded in the Tuchlaube in the north-east of the market, first mentioned in 1304. The pottery market was also located here. When the town wall was built in the early 13th century, three of the four main gates led to the Untermarkt. The courtyards of the Volkenroda (No. 17) and Beuren (No. 7) monasteries as well as that of the Teutonic Order in the old town (Kristanplatz 1) with the Chapel of St. Anne in the south-west of the square already point to representative buildings. The former court of the Teutonic Order was rebuilt in 1715/1716 as a superintendent's office, incorporating the Annen Chapel. When Mühlhausen was annexed to Prussia in 1802, the new lords claimed the Tuchlaube as their main guardhouse. The Blasii churchyard was abandoned and paved as a parade ground, considerably extending the Untermarkt to the west.

The representative houses that characterize the Untermarkt today were mostly built in the 18th century. The narrow half-timbered house from 1631 (no. 15), which stretches far into Brunnenkreßstraße, stands out visually and is still home to a bakery today, as it has been since 1415. The main building of the Sparkasse Unstrut-Hainich bank, built in 1999/2000, forms the eastern end of the market square. In 2006, the market square was redesigned and the course of the Popperöder stream was reopened. A monument to Johann August Röbling, who was born in Mühlhausen and became famous in the USA as a builder of wire rope suspension bridges, was erected in 2007 with donations from Mühlhausen residents and companies. Such commitment also made it possible to create a monument to Johann Sebastian Bach in 2009 at the Blasii Church, where he once worked. The western part of the Untermarkt was named Bach Square in his honor in 1950.