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The townsite of Wundowie is located in the Darling Range 72 kilometres east northeast of Perth and 31 kilometres west southwest of Northam. It is located adjacent to the original railway track from Perth to Northam, and in 1907 the Railways Department applied for a name for a newly constructed siding at the 53 Mile between Werribee and Karrijine. The name Wundowing was suggested by the Lands Department, and this was shortened to Wundowi by the Surveyor General.
In 1943 the government decided to commence preliminary work for a blast furnace and wood distillation plant at Wundowie, and to develop a townsite for the workers. Following the survey of lots in 1946 the townsite of Wundowie was gazetted in 1947. Wundowie derives its name from Woondowing Spring, an Aboriginal name for a nearby spring first recorded in 1874. The spelling for the siding was changed according to rules for spelling Aboriginal names adopted by the Lands Department. The meaning of the name is not known, but it has been suggested it may be derived from Ngwundow, meaning "to lie down".