Deerwood was platted in February 1892. Deerwood was incorporated in October 1909. The city was named for the abundant deer in the nearby woods. The post office at Deerwood was established in 1882.
According to the United States Census Bureau, the city has a total area of 2.05 square miles (5.31 km2), of which 1.49 square miles (3.86 km2) is land and 0.56 square miles (1.45 km2) is water. The city of Deerwood is located within Deerwood Township geographically but is a separate entity. Nearby towns include Crosby and Ironton.
As of the census of 2010, there were 532 people, 226 households, and 144 families residing in the city. The population density was 357.0 inhabitants per square mile (137.8/km2). There were 319 housing units at an average density of 214.1 per square mile (82.7/km2). The racial makeup of the city was 94.9% White, 0.9% African American, 1.7% Native American, 0.2% Asian, 0.4% from other races, and 1.9% from two or more races. Hispanic or Latino of any race were 1.5% of the population.
There were 226 households of which 33.6% had children under the age of 18 living with them, 43.8% were married couples living together, 13.3% had a female householder with no husband present, 6.6% had a male householder with no wife present, and 36.3% were non-families. 33.6% of all households were made up of individuals and 19% had someone living alone who was 65 years of age or older. The average household size was 2.35 and the average family size was 2.95.