Formed in 1991, the band consisted of Justin Trosper (vocals, guitar, songwriting), Vern Rumsey (bass), and Brandt Sandeno (drums), all of whom had previously been in a high school band called Giant Henry. Unwound released a full demo tape in 1991, and recorded an album in early 1992 (though it would not be released until 1995 as Unwound). In July 1992, Sara Lund replaced her friend Sandeno as the drummer for the band. This line-up would remain in place until the band's dissolution in 2002. The group released several singles and albums, primarily on the Kill Rock Stars label. Unwound's Fake Train was their debut album, and the first full-length musical release on Kill Rock Stars; it had been strictly a spoken-word label until its owner Slim Moon attended an Unwound concert and decided he had to release their upcoming album. Unwound also had the maiden releases for several other key underground record labels, including Gravity Records and Troubleman Unlimited Records; side project Replikants had the first release on 5 Rue Christine, an esoteric KRS offshoot. Rumsey founded and ran Punk In My Vitamins? Records, releasing material by Lowercase, Yind, the Bangs, Karp, Thrones, Dub Narcotic Sound System and Chokebore. Trosper published several issues of his own underground rock fanzine in the early 1990s. Unwound and sonic/geographic contemporaries Sleater-Kinney were generally considered KRS's flagship bands of the 1990s; no other band released anywhere near as much material on KRS as these two did. Although Unwound was not part of the riot grrrl movement, the band supported gender equality. The band made an appearance in the 1994 cult road movie Half-Cocked.
Unwound disbanded on April 1, 2002, shortly after co-headlining that year's All Tomorrow's Parties festival. The fact that they broke up on April Fool's Day fueled speculation that they would, in actuality, remain together; an early band T-shirt had the inscription "Unwound 1991–2091". Troubleman Unlimited's Mike Simonetti after hearing of the band's breakup posted a quick eulogy to Unwound on his record label's Web site: "Unwound were (and still are) beautiful people. Unwound was one of the most influential and vital bands of the '90s, and their last record was a masterpiece. You just don't know it yet. Unwound's influence will live on for a long time to come, and they were everything a band should be: independent and non-compromising in every aspect."
After Unwound broke up Vern Rumsey formed Flora v. Fauna. Sara Lund formed Hungry Ghost with Andrew Price from the Irving Klaw Trio as well as joining The Corin Tucker Band. In 2011, Brandt Sandeno and Justin Trosper formed Survival Knife.
Live Leaves, a live album documenting various performances of the band's final tour in 2001 was released later in the year. An Unwound online archive, curated by members of the band, was also launched in anticipation to the new release.
In 2013, Unwound licensed their back catalog to The Numero Group. They released their pre-Unwound band, Giant Henry, on Record Store Day in 2013 and proceeded to release four box sets, consisting of the band's entire studio output.
On August 6, 2020, bassist Vern Rumsey passed away.