Civil War veteran P. C. Funk came to Divide Township in Phelps County in 1877 and purchased 160 acres of land two miles north of the present town. By 1883 the Nebraska-Colorado Railroad, now the Burlington Northern, had extended its line as far west as Holdrege. Through the efforts of P. C. Funk, railroad officials were persuaded to establish the Funk townsite along the railroad between Axtell and Holdrege.
The village was platted in May 1887 on land purchased from August Anderson for $2,500. A townsite committee consisted of J. S. Johnson, William Johnson, Frank Johnson, George Johnson, P. C. Funk, Alfred Johnson, Charles Skallberg, Swan M. Milner, and C. F. Franzen.
The first grain elevator and house were built by L. T. Brooking, who later became the town's first postmaster and editor of the newspaper, the Funk Enterprise. In 1910 the Fridhem Lutheran Church moved to Funk. The town survived three serious fires and faced difficult times during the drouth and depression of the 1930s. Irrigation came to the area in 1938 and improved the life of farmers and villagers.