The village name is Anglo Saxon in origin, and means 'green hill near a wood', though the 'Underwood' part of the name was only added in the medieval period to differentiate the village from nearby Long Crendon and to signify the village's position near the Bernwood Forest. In the Domesday Book of 1086 the village was recorded as Grennedone.
The manor of Grendon anciently belonged to the St Armand family. Almeric de St Armand of this family was one of the godfathers of King Edward I when he was baptised in 1239.
The parish church is dedicated to St Leonard.
Today Grendon Underwood is the location of two prisons, the high security prison Grendon, and the open prison of Springhill.