The club was founded in 1890 as Tow Law F.C., before adding the Town to their name in 1905, and throughout their history they have played in a number of local leagues including the Auckland and District League, the South Durham Alliance and the Crook and District League, before joining the Northern League in 1920. They have won the Northern League's Division Two twice—in 1988 and 1992—and its Division One on three occasions—in 1924, 1925 and 1995—but they have never been promoted or demoted from the Northern League since joining it more than 90 years ago. Tow Law reached the final of the FA Vase in 1998, having progressed all the way from the first round, but were beaten by Tiverton Town in the final at Wembley Stadium.
There was a football team operating in Tow Law as early as 1881, when a vicar captained the team. However, the club still playing today was founded as Tow Law in 1890. The club became one of the founding teams of the Auckland and District League in 1892, and won the Durham Amateur Cup the following year. They then joined the Northern League in 1894. In 1896 they won the Durham Challenge Cup. They left the Northern League, and played in the South Durham Alliance from 1900 to 1905. In 1905 the club changed its name to Tow Law Town which they have stuck with ever since. The club played in the Crook and District League from 1912 until 1914. After the end of World War I in 1918, the club again played in the Auckland and District League until 1920, when they returned to the Northern League where they have played ever since. The club were league winners two seasons in a row, in 1923–24 and 1924–25. They were runners up in 1928–29. In the Second World War they resigned from the Northern League on 20 March 1940 and their record of the season was deleted. They rejoined the league in 1945 on its resumption after the War.
In the 1967–68 season, the club had their best ever run in the FA Cup. After reaching the first round proper, they beat Mansfield Town 5–1 at Ironworks Road, and took Shrewsbury Town to a second round replay after a 1–1 draw at home. The team went into the third round draw and were drawn against Arsenal at home. However this never happened because they were beaten 6–2 by Shrewsbury in the replay. Arsenal were said to be "saved from a fate worse than death – a trip to Tow Law in January."
In 1974, they won the Northern League Cup, beating Ashington 2–1 in the final at Crook. In the summer of 1978, Chris Waddle started playing for the club. In the summer of 1980, while Waddle was working in a sausage factory, he was sold to Newcastle United for the fee of £1,000. Tow Law Town were runners-up in the 1988–89 season, before finally winning the league again in 1994–95, sitting 14 points clear at the end of the season. They missed out on the runners up spot the following year on goal difference. Harry Hodgson had long served as Chairman of the club, but stood down at the end of 1995–96, but as of 2011 he still remains a member of the committee. John Flynn took over as Chairman. At the end of 1996–97, Harry Dixon, another long standing official at the club, stood down as treasurer, but stayed on as the club's president. Kevin McCormick took over as treasurer.
The club made their first and so far only visit to Wembley Stadium on 9 May 1998, by winning through to the final of the FA Vase, under the management of Peter Quigley and his assistant Tony Heslop. They reached the final, beating Taunton Town 5–4 on aggregate in a two legged semi-final. In reaching the final, Tow Law, with its population of only 2,200, became the smallest town to ever reach a Wembley final. The team took around 4,000 supporters with them down to London, about twice the population of Tow Law at the time. They were beaten in the final 1–0 by Tiverton Town.