Settlement of the area which is now Grottoes probably occurred around 1735. A grant of sixty thousand acres on the Shenandoah River, where the Augusta County/Rockingham County line is currently located, was made to John Thomas, John Taylor and William Beverly. The condition of the grant was that one family locate on each one thousand acres every two years. Not much is recorded on the history of the area until late in the 1800's.
The settlement became known as "Liola" in the early 1880's. Most of the land was owned by the Abbott Iron Company. The name of the area was changed to "The Grottoes" in 1888.
Early in 1889, The Grottoes Company, with Jed Hotchkiss as president, started buying up land in the area. Mr. Hotchkiss was a New Yorker and was Stonewall Jackson's mapmaker during the Civil War. It was through his dreams that the Town of Shendun was founded.
The area met all the requirements of becoming a city-site: there was adequate land for manufacturing plants; the land was suitable for businesses to locate; it was a beautiful location for home sites (being located on the South River with the Blue Ridge Mountains in the background); and the area had natural drainage. The Shenandoah Valley Railroad from Hagerstown to Waynesboro went through the area. This was an important factor in the development of the area. There were rich beds of coal and ores there, the deposits of which were easily transported to the markets in the North via the railroad. The Weyers Caves, which were located nearby, had gained worldwide fame by 1889. These caves, which are now called "Grand Caverns," were discovered by Bernard Weyer in 1806 while he was digging in a ground hog hole. The Grottoes Company was a major developer of the area. Jed Hotchkiss as president was able to gain capital from financers in New York City, Philadelphia, Washington D.C., and West Virginia for developing the area through impressing them with his hopes for the town. The Company wanted to exhibit the caves, mine the ore beds and sell business and residential lots. The Grottoes Company sold stock in its corporation for one hundred dollars per share. Persons buying the stock could make a small down payment with a note to pay the balance at some future date.
In 1890, the town was laid out and named "Shendun." The town was well-planned when it was laid out. Factories were to be built between 1st and 3rd Avenues and from 6th to 29th Streets. All public buildings such as schools and churches would be between 5th and 6th Avenues and 3rd and 29th Streets. The remainder of the town would be home lots. The price of home lots in 1890 was from two hundred to six hundred dollars for a plot twenty-five by one hundred twenty feet.
By 1891, the town was alive with industries and its population was around seven hundred persons, which represented an increase of about one hundred percent over the previous five months. The first child was born in Shendun in January 1891. This growth was a result of the "boom" trend the whole area was experiencing in the late 1800's. Mail service from Staunton began in January 1891. The first bank, the Valley Bank of Virginia, was beginning operation in March 1891. In this same year there was a carpentry business started, Eutsler Brothers & Company, and they had contracted to build twenty homes.
Streetcar lines were being laid from Port Republic to Shendun, and the streets in the town were being paved. An electric plant was under construction in 1891. The power poles were placed in the alleys behind homes rather than along the streets, keeping the streets attractive. The Shendun News, the town's newspaper, was being printed in the best-equipped printing establishment in the state. The Plumber's Supply Works and a brass factory were being built. There were two brick factories, Jordan Brick Works and Law Brick Factory, a woolen mill, a plaster factory, a tile factory and a sash and blind factory started about this time. Many of these factories had borrowed money from the Grottoes Company to initiate their business. The first telephone line connecting Shendun and Staunton was completed in May of 1891. A tin shop was ready to open and a twenty-four room hotel was under construction.
By the end of the year 1891, the town was booming, but the economy in the town was showing signs of weakening. The Grottoes Company began to lay off employees. In addition to the laborers being laid off, the engineering corps was released, the clerical staff was reduced and the general manager and architect were no longer working. Jed Hotchkiss resigned as president of the corporation and E.S. Ruffins, a man from Norfolk who had the reputation of being a hustler, was appointed in his place. Even though the economy was faltering, it was still a good year for Shendun.
By an act of the General Assembly on February 16, 1892, the Town of Shendun was incorporated. The act also provided that the government of the town include a Council of seven persons to be elected by ballot every two years.
In January of 1893, the Grottoes Hotel burned. This was a great business loss to the town and to the Grottoes Company. The newspaper went bankrupt the same year. The Grottoes Company also went bankrupt in 1893. The trouble was due to the Company not being able to collect on stock subscriptions, and lot sales had almost ceased. The Company sued its stockholders for payments. The Circuit Court ruled in favor of the stockholders for reasons of false and fraudulent representation: the directors bought stock in the company without notifying the stockholders, and the property of an ironworks company was never owned by the Grottoes Company. After the Company went bankrupt, families started leaving town. Some of the local people tried to save the town by leasing the caves, the streetcar lines and some other business, but to no avail.
There were many reasons why Shendun failed. First, many dangers were overlooked by Major Hotchkiss concerning an enterprise of that magnitude. Second, the paper value of the land owned by the Grottoes Company never equalled its market value. Third, besides Eutsler Brothers, the Company never had an industry in stable financial condition. Fourth, the new directors of the Grottoes Company lacked the enthusiasm and drive which Mr. Hotchkiss possessed, resulting in a lack of growth for the town. Also, the entire country was in a state of depression in 1893.
In the early 1900's there was a woodworking plant, several dry goods stores, real estate offices, a bowling alley, a mill and blacksmith shop in Grottoes. The Bank of Grottoes opened for business on February 17, 1908. In 1912, by an Act of the General Assembly, the town's name was changed from "Shendun" to "Grottoes," meaning caves. By this time the population had decreased to about four hundred persons.
In 1948 a central water system was installed in the town. The Volunteer Fire Department was also organized that year. Reynolds Metals Company began its operation in 1956. In 1983, the town received two grants to construct its centralized sewer system to allow the town to continue to grow without the limitations of individual sewer systems.
By 2000, the town had grown to a population of 2,114 people. The renovation of the old Grottoes Elementary School provided for a new centralized town hall, branch library and police department on Dogwood Avenue. Also by 2000, the fire station relocated to a new location on Route 256. The town developed a 54 acre park with pavilions, a boat ramp, a baseball facility and a driving range.
In recent years, the town has improved its motor vehicle and pedestrian transportation patterns within the town with the completion of a major project extending Route 256 to Route 340. In 2002, a new shopping center opened with a Food Lion Supermarket and several other businesses. A new system for wastewater treatment was established recently. The town has recently annexed land from surrounding Rockingham County, which will ensure its continued growth into the future.