In March 1909, the town council of Eibenstock called for old and memorable objects to be collected and offered to the town council for purchase in order to be able to set up a museum of its own later on. It is mainly thanks to Otto Findeisen, teacher, town chronicler and local historian of Eibenstock, that numerous exhibits were collected. However, the plan was not pursued further.

It was not until 10 July 1937, when the first exhibit, a cup of the butchers' guild from 1669, was presented, that the idea for a museum was taken up again.  Thus, by August 1939, a total of 47 pieces had been presented, but not in a museum, but in the shop window of a dry cleaner of the time. The Second World War interrupted the efforts for a future museum. 

On the occasion of the 800th anniversary of our mountain town, a museum was finally inaugurated in 1955. Until 1997, the local history museum was located on the Platz des Friedens. 

Thanks to the commitment and initiative of some citizens closely connected with embroidery and the close cooperation with the town of Eibenstock, the embroidery museum could be reopened in the Bürgermeister-Hesse-Straße in 1997. In addition to the embroidery show workshop, where large embroidery machines are shown and demonstrated to guests in action to this day, the Eibenstock local history show with the model railway layout - steep line from the Upper Station to the Lower Station Eibenstock also found its place.

In 2012, the "Trumpoldsche Sammmlung" (Trumpold Collection) with almost 15,000 single-use figures of Erzgebirge folk art, collected by a single family, was integrated into the museum as a permanent exhibition.

In 2018, two more exhibitions were added: The Krauß Collection, a carving exhibition by the Johanngeorgenstadt carver Gottfried Krauß, and the Mechanical Landscapes, a replica of typical East German landscapes with movable elements, by Peter Uhlig.

As the tin and ore deposits in the western Ore Mountains dried up more and more, work in the mining industry declined drastically around 1760. No work, no bread, and so hunger, hardship and poverty descended on the town. Many people died or left the area.   

In 1775, a young woman named Clara Angermann came from Poland to Eibenstock as a saviour in distress. She taught the women and girls how to tambourine, how to embroider with a crochet hook, and thus laid the foundation for Eibenstock to become an embroidery town. In the course of time, a flourishing embroidery industry developed from the initially modest local trade, which brought world fame and prosperity to Eibenstock.

The development of embroidery continued and so the hand embroidery machine was invented in 1829. With this, embroidery by hand was replaced by the machine. At that time, every member of the family worked late into the night. The women and children took over the work of threading the needles for the hand embroidery machine. Later, this work step was also mechanised. Subsequently, the shuttle embroidery machine with pantograph was developed in 1863. This machine was introduced in Eibenstock in 1883. Finally, in 1910, an automatic machine controlled by punch card with an accompanying punching and repeating machine came into use. It is still in use today, partly unchanged.

After the embroidery and its machines developed well, embroidery from Eibenstock already dominated the world market around 1900. Thanks to this boom, Eibenstock was connected to the existing railway network. In 1904/5 the so-called "steep line" of Eibenstock was built - the steepest standard gauge railway in Germany.

In the years after the Second World War, production cooperatives emerged from the smaller enterprises, which were nationalised in 1972. At that time, more than 1000 people were employed in embroidery. Today, only the Funke embroidery company and the Diersch & Schmidt company still exist in Eibenstock.