In 1869, John Martin, a native of Maine, settled in South Fork Valley and established Lee, which he named for Robert E. Lee. Though an actual community was slow to develop, ranches were homesteaded over the next decade. In March 1881, the Eureka Flour Mill Company was organized with John Ainley as president and John Martin as superintendent. In May, construction started on the three-story South Fork Flour Mill. Completed in November at a cost of $19,000, the mill produced eighty barrels of flour each day. With the construction of the mill, Lee began to grow. Soon it had a school and a population of fifty.

The mill later passed through a number of hands before it was destroyed by fire. It was rebuilt in by J.J. Hylton of Jiggs before 1915, when it was again sold. During World War I, it was shuttered due to war rationing, and used as a recreation hall until it was again destroyed by fire in the 1930s.

After the closure of the mill, Lee gradually declined, though it held on as a social center for surrounding ranches. Between 1935 and 1941, the community and adjacent lands became a part of the Te-Moak Tribe of Western Shoshone Indians. The school district was abolished in 1957, and electricity was brought to town in 1963. Today, Lee still has a small population, and a few old buildings still stand, including the Lee Store (formerly the short-lived South Fork Creamery) and schoolhouse.