It is believed that the breed was first established on the Swedish island of Gotland by the Vikings. They crossed the native Swedish Gute sheep with Karakul and Romanov sheep brought back from expeditions deep into Russia. The Vikings took these sheep on their travels providing their crew with meat and skins along the route. Those early travels contributed to the spread of these Northern short-tailed sheep and the development of related sheep breeds such as Icelandic, Finn and Shetland. Primitive horned Gute and Gotland sheep still exist on the island of Gotland today.

Gotland Sheep received world wide attention when the movie trilogy "Lord of the Rings" featured the Magic Elven cloaks made of (mostly) Gotland wool.