Jajce is a town that was first built in the 14th century and which served as the capital of the independent Bosnian kingdom during its time. The town has gates as fortifications, as well as a castle which has walls which lead to the various gates around the town, to protect the castle. When the Bosnian kingdom fell to the Ottoman Empire in 1463, Jajce was taken by the Ottomans but was retaken the same year.

During this period, the last Bosnian queen Katarina Kosača-Kotromanić restored the Church of Saint Luke in Jajce, today the oldest church in town. Eventually, in 1527, Jajce became the last Bosnian town to fall to Ottoman rule. There are several churches and mosques built in different times during different rules, making Jajce a rather diverse town in this aspect.

Jajce gained prominence during the Second World War because it hosted the second convention of the Anti-Fascist Council of National Liberation of Yugoslavia on November 29, 1943, a meeting that set the foundation for the Socialist Federal Republic of Yugoslavia after WWII.

In the census of 1991, the municipality of Jajce was inhabited by 45,007 people: 17,380 (38.75%) Bosniaks, 15,811 (35.13%) Croats, 8,663 (19.25%) Serbs, 2,490 (5.53%) Yugoslavs, and 657 (1.23%) others. The town of Jajce itself had 15,454 (with Carevo Polje which is the part of the town) residents, of which 36.10% Bosniaks, 24,60% Serbs, 22,10% Croats, 14,58% Yugoslavs and 2.62% others. Town itself had; 13 589 (without Carevo Polje)

In Basceluci and Kozluk Bosniaks were majority, and in Pijavice Serbs, and in Skela Croats.

At the beginning of the Bosnian war, Jajce was inhabited by people from all ethnic groups, and was situated at a junction between areas of Serb majority to the north, Bosnian Muslim majority areas to the south-east and Croatian majority areas to the south-west.

At the end of April and the beginning of May 1992, almost all Serbs left the city and fled to territory under Bosnian Serb control Republika Srpska. In the summer of 1992, the Bosnian Serb army started heavy bombardment of the city. Serb forces entered Jajce in October 1992, apparently due to lack of cooperation between Bosnian Muslim and Croatian forces. The Bosniak and Croat population escaped through Divicani into Travnik. In the Croat counteroffensives of August-September 1995 the town was taken by Croatian forces with most of the Serb population fleeing. Jajce became part of the Muslim-Croat Federation according to the Dayton Agreement.