Dunstable was named after its sister town Dunstable, England. There are several theories concerning its modern name. In one version, legend tells that the lawlessness of the time was personified in a thief called Dun. Wishing to capture Dun, the King stapled his ring to a post daring the robber to steal it. It was, and was subsequently traced to the house of the widow Dun. Her son, the robber, was taken and hanged to the final satisfaction that the new community bore his name. Another theory is that it comes from the Anglo-Saxon for "the boundary post of Duna". A third version is that the name is derived from Dunum, or Dun, a hill, and Staple, a marketplace.

Dunstable was first settled in 1656 and was officially incorporated in 1673. It is likely named after the town of Dunstable in Bedfordshire, England, home of Edward Tyng, the town's first settler. The original township of Dunstable, granted in 1661, consisted of two hundred square miles, including the Massachusetts towns of Dunstable, Pepperell, Townsend and Tyngsborough, the New Hampshire towns of Hudson, Nashua and Hollis, and parts of other towns as well. Increases in population leading to subsections becoming independent towns and the delineation of the northern boundary of Massachusetts in 1740 placed the northern part of Dunstable (present day Nashua) in New Hampshire, so the southern part remains the Dunstable of today.

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