The name of the settlement is derived from the Slovenian word lipa 'linden tree'. The species is common in the area and is a national symbol of Slovenia. The staff at the Lipica Stud Farm plant a new linden tree for every foal born.
From the 14th century until 1947, Lipica was part of the municipality of Trieste. When Charles II, Archduke of Inner Austria (son of Ferdinand I, Holy Roman Emperor) decided to establish a new stud farm in the 16th century, the Spanish horse was considered the ideal horse breed. Because the soil and climate in the Karst region is similar to that of Spain, Lipica was chosen as the perfect spot for the new farm.
The Lipica stud farm was established in 1580 and the first horses were bought from Spain in 1581 (24 broodmares and six stallions). The farmers living in the area at the time were evicted and resettled in Laže.
A coal mine operated east of the settlement from 1778 to 1817. Coal mining was attempted at the site again in 1857 and at sporadic later dates, but was deemed uneconomical because it is deposited only in lenses. Coal from the mine was once used at the sugar refinery in Rijeka. In 1947, Lipica was annexed to Yugoslavia and incorporated into the Slovenia, one of the country's constituent republics, which became independent in 1991.
Lipica is the site of a mass grave associated with the Second World War. The Lipica Shaft Mass Grave (Slovene: Grobišče Lipiško brezno) is located about 500 m southwest of the tree-lined boulevard by the stud farm. It contains an undetermined number of human remains.