Chapel Hill is located in the southeast corner of Orange County, with a small part extending east into Durham County. It is bounded on the west by the town of Carrboro and on the northeast by the city of Durham. However, most of Chapel Hill's borders are adjacent to unincorporated portions of Orange and Durham Counties rather than shared with another municipality. According to the United States Census Bureau, the town has a total area of 21.75 square miles (56.3 km), of which 21.60 square miles (55.9 km²) is land and 0.15 square miles (0.39 km) (0.69%) is water.

The Occaneechi Indians lived in the area of what is now Hillsborough, north of Chapel Hill, prior to European settlement.

The area was the home place of early settler William Barbee of Middlesex County, Virginia, whose 1753 grant of 585 acres on the north and south side of "Lick Branch" from John Carteret, 2nd Earl Granville was the first of two land grants in what is now the Chapel Hill-Durham area. Though William Barbee died shortly after settling there in 1758, one of his eight children, Christopher Barbee, became an important contributor to his father's adopted community and to the fledgling University of North Carolina. In 1792, he offered the trustees of UNC 221 acres on which the university is now built, making him the university's largest donor.

Chapel Hill has developed along a hill; the crest was the original site of a small Anglican "chapel of ease", built in 1752, known as New Hope Chapel. The Carolina Inn now occupies this site. In 1819, the town was founded by the NC General Assembly to serve the University of North Carolina and developed around it. The town was chartered in 1851, and its main street, Franklin Street, was named in memory of Benjamin Franklin.

Four in ten Chapel Hillians were enslaved at the start of the Civil War, and about half of the town was Black. In April 1865, as the war ended, the 9th Michigan Cavalry rode into Chapel Hill and occupied the university and the town for more than two weeks.

In 1969, a year after the city fully integrated its schools, Chapel Hill elected Howard Lee as mayor. It was the first majority-white municipality in the South to elect an African-American mayor. Serving from 1969 to 1975, Lee helped establish Chapel Hill Transit, the town's bus system, and the Mountains-to-Sea trail.

Some 30 years later, in 2002, the state passed legislation to provide free service to all riders on local buses. The bus operations are funded through Chapel Hill and Carrboro town taxes, federal grants, and UNC student tuition. The change has resulted in a large increase in ridership, taking many cars off the roads. Several hybrid and articulated buses have been added recently. All buses carry GPS transmitters to report their location in real-time to a tracking web site. Buses can transport bicycles and have wheelchair lifts.

In 1993, the town celebrated its bicentennial and founded the Chapel Hill Museum. This cultural community resource "exhibiting the character and characters of Chapel Hill, North Carolina" includes among its permanent exhibits Alexander Julian, History of the Chapel Hill Fire Department, Chapel Hill's 1914 Fire Truck, The James Taylor Story, Farmer/James Pottery, and The Paul Green Legacy.

In addition to the Carolina Inn, the Beta Theta Pi Fraternity House, Chapel Hill Historic District, Chapel Hill Town Hall, Chapel of the Cross, Gimghoul Neighborhood Historic District, Alexander Hogan Plantation, Old Chapel Hill Cemetery, Old East, University of North Carolina, Playmakers Theatre, Rocky Ridge Farm Historic District, and West Chapel Hill Historic District are listed on the National Register of Historic Places.

Chapel Hill uses a council-manager form of government. The community elects a mayor and eight council members. Mayors serve two-year terms, and council members serve staggered four-year terms, all elected by the city at large; city elections are held in November of odd-numbered years. Mayor Pam Hemminger, a former board of education member, was elected in 2015 and re-elected in 2017, 2019, and 2021. She is currently serving her fourth term. She defeated incumbent Mark Kleinschmidt, who in 2009 had been elected the first openly gay mayor of Chapel Hill, succeeding outgoing four-term Mayor Kevin Foy.

The town adopted its flag in 1990. According to flag designer Spring Davis, the blue represents the town and the University of North Carolina (whose colors are Carolina blue and white); the green represents "environmental awareness"; and the "townscape" in the inverted chevron represents "a sense of home, friends, and community."

The town's seal, has, since the 1930s, depicted Athena, the Greek goddess of wisdom and protector of cities. Having gone through several revisions, the seal, which also serves as the town logo, was most recently updated in 2005 to a visually simpler version.