New Square is named after the Ukrainian town Skvyra, where the Skverer Hasidim originated. The founders intended to name the settlement New Skvir, but a typist's error anglicized the name. New Square was established in 1954, when the Zemach David Corporation, representing Skverer Grand Rabbi Yaakov Yosef Twersky, purchased a 130-acre (0.53 km2) dairy farm near Spring Valley, New York, in the town of Ramapo. At that time, the Skverer community lived in the Williamsburg area of Brooklyn in New York City. Construction began in 1956, and the first four families moved to New Square in December 1956. In 1958 the settlement had 68 houses.
The development of New Square was obstructed by Ramapo's zoning regulations, which forbade the construction of multi-family houses and the use of basements for shops and stores. Multiple families sharing single-family houses said that they belonged to extended families, and businesses in private homes had to be secret. In 1959, the community asked for a building permit to expand its synagogue, located in the basement of a Cape Cod-style house. The Ramapo town attorney requested condemnation of the entire New Square community, claiming that it threatened sewage lines. In response, the community requested incorporation as a village, but Ramapo town officials refused to allow it. In 1961, a New York state court ruled in favor of New Square, and in July New Square incorporated.
After incorporating, New Square set its own zoning and building codes, legalizing the existing houses and the liens disappeared. Lots were sold, and new houses were built. The basement businesses could trade openly, and new businesses were founded, including a watch assembly plant and a cap manufacturer. Three knitting mills and a used car lot opened, but most men continued to go to work in New York City. A Kollel was opened in 1963. In 1968, Grand Rabbi Yaakov Yosef Twersky died; he was succeeded as Grand Rabbi by his son David Twersky.
In New Square's first mayoral election in 1961, Mates Friesel was chosen unopposed. Friesel was reelected every two years, until his death in 2015, thereby becoming one of the longest-serving mayors in the United States.
The community in New Square is made up exclusively of Hasidic Jews, mostly from the Skverer Hasidic movement, who wish to maintain a Hasidic lifestyle while keeping outside influences to a minimum. The predominant language spoken in New Square is Yiddish.