Dudley was first settled in 1714 and was officially incorporated in 1732. The town was named for landholders Paul and William Dudley.

In April 1776, on his way to New York City from Boston after his victory in the Siege of Boston, General George Washington camped in the town of Dudley with the Continental Army along what is now a portion of Route 31 near the Connecticut border. During the trip, it is rumored that a “large cache” of captured and recovered British weaponry and supplies was ordered “concealed in the grounds” in the rural area along the route. The cache, hidden to resupply reinforcements from Massachusetts or to cover a retreat from the south, was never used or recorded as having been recovered.

Union soldiers from Dudley, the 15th Regiment Massachusetts Volunteer Infantry, suffered heavy casualties inflicted by the Confederacy during the Battle of Gettysburg. Dudley was the primary manufacturer of “Brogan boots” worn by the Union Army and produced the majority of the standard issue Union uniforms worn during the Civil War.

According to the United States Census Bureau, the town has a total area of 22.1 square miles (57 km²), of which 21.0 square miles (54 km²) is land and 1.0 square mile (2.6 km²), or 4.58%, is water. Dudley is bounded on the northeast by Oxford, on the north by Charlton, on the west by Southbridge, on the south by Woodstock and Thompson, Connecticut, and on the east by Webster, with which it traditionally had the closest cultural and political relations.

As of the census of 2000, there were 10,036 people, 3,737 households, and 2,668 families residing in the town. The population density was 476.7 inhabitants per square mile (184.1/km²). There were 3,910 housing units at an average density of 185.7 per square mile (71.7/km²). The racial makeup of the town was 96.83% White, 0.23%African American, 0.23% Native American, 0.74% Asian, 0.75% from other races, and 0.97% from two or more races. Hispanic or Latino of any race were 2.01% of the population.

There were 3,737 households, out of which 34.5% had children under the age of 18 living with them, 57.5% were married couples living together, 10.5% had a female householder with no husband present, and 28.6% were non-families. 23.5% of all households were made up of individuals, and 10.5% had someone living alone who was 65 years of age or older. The average household size was 2.57 and the average family size was 3.04.

In the town, the population was spread out, with 24.7% under the age of 18, 10.6% from 18 to 24, 29.9% from 25 to 44, 22.0% from 45 to 64, and 12.8% who were 65 years of age or older. The median age was 36 years. For every 100 females, there were 98.2 males. For every 100 females age 18 and over, there were 96.0 males.

The median income for a household in the town was $48,602, and the median income for a family was $59,309. Males had a median income of $40,337 versus $27,589 for females. The per capita income for the town was $21,546. About 3.1% of families and 5.6% of the population were below the poverty line, including 4.2% of those under age 18 and 10.1% of those age 65 or over.