In 1905, the Chaffee Real Estate Company of St. Louis purchased 1,800 acres of land from a local farmer, John Witt of Sikeston, Missouri, for $140,000. The real estate company soon transferred ownership of 150 acres to the St. Louis-San Francisco Railway for the purpose of building a large rail switching yard and began surveying the area for a town for the railroad employees.
The Chaffee Real Estate Company gave public notice for the sale of real estate within the future town to local individuals and businesses, and began clearing land for construction in August 1905. The company attached an unusual clause to the deeds, providing that property could not be used for "the dispensation of intoxicating liquors. "The residents of the new town petitioned the Clerk of the County Court of Scott County, Missouri, to incorporate the area into the fourth-class city of Chaffee on August 6, 1906; and the petition was granted on December 8, 1909.
In 1911, the First National Bank of Chaffee issued $392,320 in "national currency" with the permission of the United States Department of the Treasury, giving Chaffee the distinction of being a city with its own currency.
Chaffee utilizes a Mayor-Council form of government, with a mayor and eight council members. The city has a Police Department and a volunteer fire department. The water, sewer, and trash systems are municipally-owned. Ameren Missouri provides gas and electricity.
Chaffee has several parks, and boasts one of the few remaining operational Bintz above-ground pools. The pool was built in 1939 and is the prized jewel of the city.