Originally established after the 1849 California Gold Rush as a mining camp, the town was first called Butte Mills. The post office opened in 1857, and was renamed to Magalia in 1861. A dog breeding operation started in 1850 which led to the place being called Dogtown. Dogtown, and the adjacent settlement of Mill City shared the post office and eventually united.
On April 12, 1859, at the Willard Claim, a hydraulic mine in the Feather River Canyon northeast of the town, a 54-pound (20 kg) gold nugget was discovered, the largest gold nugget ever discovered in the world at the time. Dubbed the "Dogtown nugget", it made the town famous.
However, the female residents preferred not to live in a place called "Dogtown", and in 1862, the name was changed to Magalia, Latin for "cottages".
According to the United States Census Bureau, the CDP has a total area of 14.1 square miles (36.4 km²), all of it land. There are numerous flora and fauna species found in the vicinity including mammals such as Black tailed deer, raccoon and grey squirrel. A considerable number of amphibians are also found such as the Rough-skinned Newt, whose southern range in California interior occurs near Magalia.
At the 2000 census, there were 10,569 people, 4,395 households and 3,199 families residing in the CDP. The population density was 751.0 per square mile (290.0/km²). There were 4,752 housing units at an average density of 337.6/sq mi (130.4/km²). The racial makeup of the CDP was 94.09% White, 0.41% Black or African American, 1.20% Native American, 0.59% Asian, 0.09% Pacific Islander, 1.03% from other races, and 2.59% from two or more races. 4.88% of the population were Hispanic or Latino of any race.
There were 4,395 households of which 24.3% had children under the age of 18 living with them, 59.8% were married couples living together, 9.0% had a female householder with no husband present, and 27.2% were non-families. 22.3% of all households were made up of individuals and 12.7% had someone living alone who was 65 years of age or older. The average household size was 2.38 and the average family size was 2.73.
Age distribution was 21.9% under the age of 18, 5.4% from 18 to 24, 20.7% from 25 to 44, 24.6% from 45 to 64, and 27.5% who were 65 years of age or older. The median age was 47 years. For every 100 females there were 94.5 males. For every 100 females age 18 and over, there were 92.4 males.
The median household income was $32,337, and the median family income was $38,654. Males had a median income of $36,909 versus $21,892 for females. The per capita income for the CDP was $16,904. About 9.2% of families and 12.7% of the population were below the poverty line, including 18.4% of those under age 18 and 5.2% of those age 65 or over.