Madbury was originally a part of Dover called Barbadoes, after the West Indies island of Barbados with which settlers conducted trade, sending wood and lumber in exchange for sugar, molasses and other commodities. The name survives at Barbadoes Pond. Garrison houses were built as protection against the Indians. Later it was part of Durham, a Dover parish which organized in 1716 and then incorporated in 1735. Madbury was once the farm of Sir Francis Champernowne of Greenland, and named after his ancient family's mansion at Modbury in Devon, England.

The name Madbury Parish was first recorded in a 1755 grant made by Colonial Governor Benning Wentworth, with full town privileges granted in 1768 by his successor, Governor John Wentworth. A lumbering and farming community, Madbury was incorporated in 1775.Jackson in Carroll County was first settled in 1778 as New Madbury by residents of the town. Today, Madbury is residential, its inhabitants generally employed elsewhere. Numerous faculty of the nearby University of New Hampshire reside here.

The town of Madbury is shaped like a wedge, extending from the eastern tip of the town touching Cedar Point on Little Bay to the town's border with Barrington to the west. The towns of Durham and Lee border Madbury to the south, and the city of Dover is to the northeast. According to the United States Census Bureau, the town has a total area of 12.2 square miles (32 km²), of which 11.7 sq mi (30 km²) is land and 0.6 sq mi (1.6 km²) is water, comprising 4.58% of the town. The highest point of land is the summit of Hicks Hill, at 331 feet (101 m) above sea level, located close to the center of town.

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