The town began during the Victorian Gold Rush, and has produced more nuggets than any other goldfield in Australia. The town was first known as Goldborough and the Post Office opened under that name on 1 March 1856 and was renamed Dunolly in 1859.
Centered on the main street "Broadway" Dunolly features both a top and bottom pub, hospital, grain terminal and a primary school.
Although located on a major rail line no passenger services are available.
There is a local museum on "Broadway". It has a major collection of historic photographs and goldfields implements.
Dunolly has become a favorite location for gold fossicking using metal detectors. A number of small scale alluvial mining operations work local "leads" using mechanical diggers.
Dunolly has a huge monthly market from all over Victoria and other states The town boasts two cafes and two pubs, a bakery/cafe, a butcher, a small IGA type supermarket, friendly chemist with full-time pharmacist,a full-time doctor,a hardware & produce supplier,collectable shop,nice coffee/lunch shop,fish shop, an agricultural machinery oriented service station and fuel stop, a Bed and breakfast ("Footer's Mansion"), self-contained accommodation ("Hunt's Folly"), a motel, historic buildings and well marked cycle tracks through the abandoned diggings.
Golfers play at the Dunolly Golf Club on Separation Street.