The town of Kelso came into being as a direct result of the creation of Kelso Abbey in 1128. The town's name stems from the fact that the earliest settlement stood on a chalky outcrop, and the town was known as Calkou (or perhaps Calchfynydd) in those early days.
Standing on the opposite bank of the river Tweed from the now-vanished royal burgh of Roxburgh, Kelso and its sister hamlet of Wester Kelso were linked to the burgh by a ferry at Wester Kelso. A small hamlet existed before the completion of the Abbey in 1128 but the settlement started to flourish with the arrival of the monks. Many were skilled craftsmen, and they helped the local population as the village expanded. The Abbey controlled much of life in Kelso-area burgh of barony, called Holydean, until the Reformation in the 16th century. After that, the power and wealth of the Abbey declined. The Kerr family of Cessford took over the barony and many of the Abbey's properties around the town. By the 17th century, they virtually owned Kelso.
In Roxburgh Street is the outline of a horseshoe petrosomatoglyph where the horse of Charles Edward Stuart cast a shoe as he was riding it through the town on his way to Carlisle in 1745. He is also said to have planted a white rosebush in his host's garden, descendants of which are still said to flourish in the area.
For some period of time the Kelso parish was able to levy a tax of 2 pence on every Scottish pint of ale, beer or porter sold within the town. The power to do this was extended for 21 years in 1802 under the Kelso Two Pennies Scots Act when the money was being used to replace a bridge across the river Tweed that had been destroyed by floods.